Tax considerations for the Self-Employed

by Beth Cortez

Are you self-employed?  If so, you may be thinking about ways to reduce your self-employment taxes.  As I ‘m sure you know, when you were self-employed in 2022, you paid 15.3% of your net earnings.  12.4% went to social security and 2.9% went to Medicare. Why was the percentage so high?  Employers are responsible to pay half of the payroll tax, while self-employed individuals are responsible for the whole amount. Knowing this, you are probably wondering what deductions you are entitled to so you don’t pay more than you have to. Here is a list of some items you will want to start thinking about so you can start gathering the appropriate documentation in time for the upcoming deadline next year.

Do you have a home office?  Do you use it regularly and exclusively for your business?  If so, you can either use a simple deduction of $5 per square feet of office space you use (up to 300 square feet for a total of $1,500), or you can use the regular method of deduction which considers your home office square footage, as a percentage of your home’s total square footage, and the expenses related to it (such as the rent, mortgage, mortgage interest, insurance, taxes and utilities related to the home it is in).

Another great deduction is the business mileage deduction.  If you use your personal car for work as a self-employed person, you can deduct your mileage on your tax return.  You can use the standard mileage deduction (which is currently 65.5 cents per mile) or you can take the actual method for your deduction.  If you use the actual method, you will need to keep track of the business miles you used (by reading your odometer at the beginning and end of each trip), gas, oil, licensing, registrations fees, any repairs, tires, insurance, lease payments and vehicle depreciation. We can help you calculate which option would be best for you to use to maximize your deductions. We can also help determine the advantages and disadvantages of purchasing a business-use vehicle.

In addition, you can deduct costs of education and training you purchased to further your business knowledge, and any books, supplies, fees, transportation costs, etc. for that as well.  You could deduct health care insurance premiums you paid if you netted a profit for your business this year, a percentage of any phone services you paid for in relation to the business, travel expenses, advertising, retirement plan contributions, and up to $5000 of your business start-up costs and more.

“Keeping good records will help you to get the most out of your tax deductions and keep you from overpaying on your taxes.”

Keeping good records will help you to get the most out of your tax deductions and keep you from overpaying on your taxes.  If you can keep track of these items monthly, it will help it to be less burdensome to calculate.  MPK Advisors offers assistance with bookkeeping as well as tax planning, so please inquire within if you would like us to help you with some of these things.  We are always happy to help make sense of your financial future.