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Self-employment Tax Deduction
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Self-employment tax deduction
The tax system in the US works on a pay-as-you-go basis, so the IRS collects income taxes throughout the year via payroll. Ideally, if you are a W-2 employee, you automatically get your taxes withheld by your employer.
However, as a freelancer, taxes aren’t a cakewalk. You’re your own employer, so you have to pay a bit extra in “self-employment tax” to contribute to Social Security and Medicare. Now, these taxes are used to pay
- Federal Income tax
- State income tax
- Self-employment taxes
- Social security
- Medicaid/medicare
Apart from these above-mentioned taxes, freelancers also have to pay for
- Capital gains taxes: both short term and long term gains
- AMT or Alternative Minimum Taxes for those earning over $100k annually
Fortunately, the IRS provides you with the ability to claim any expenses considered to be “ordinary and necessary” to run your business as a deduction from your 1099 tax. These deductions lower your taxable income which is useful when making estimated tax payments.
The following represents some of the situations where freelancers can claim the above-mentioned deductions
Delivery Drivers
As a delivery driver, you can deduct your mileage expenses, if you drive around making deliveries, picking up supplies, and running business-related errands. You can use the standard mileage rate to take a deduction of $0.56 per business mile, or you can use the actual expense method to deduct the business portion of costs like gas, repairs and maintenance, auto insurance, registration, and car loan interest or lease payments.
Landlord
As a property owner, you can deduct rent and any expenses deemed necessary and associated with property rental including rental income, mortgage interest, property taxes, and depreciation.
Performing Artist
As a performing artist, if you happen to have your art studio in a spare bedroom of your home, which serves as a dance studio, teaching studio, or practice studio you may claim the home office deduction. The deduction amount relies heavily upon how much of the house is devoted to your work.
Chef
As a cook/chef or baker, if you host a dinner party for your clients, you can deduct the cost of groceries and other food items from your taxes as a business meal since it is directly related to your trade or business.
Travel bloggers
As a travel blogger, you can deduct the cost of travel and related expenses including transportation and accommodations at destinations that are the subject of your blog content.
Nurse
As a nurse or health care worker, you can deduct your education expenses. Since you are required to maintain 30 contact hours of credit every two years. Doctors, physicians, and nurses have to regularly refresh their knowledge of the industry and are eligible to claim education as a legitimate tax write-off.
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