7 Tax Deductions Self-Employed Workers Shouldn’t Overlook

7 Tax Deductions Self-Employed Workers Shouldn’t Overlook

Self-employment can bring more flexibility, but often it brings more pressure as well. You are both employee and employer, which means you can set your own hours and decide which projects you feel like taking on. It also means that if you don’t have any cash flow coming in, there’s no one to blame but yourself.

As taxes can get more complicated as self-employed, you must pay them quarterly and you owe a lot more in Social Security and Medicare tax, which in traditional jobs is split between employee and employer. But there is one big plus to being a self-employed person around tax time, and that’s all the deductions you can claim to lower your bill. Here’s a look at 7 that you don’t want to miss out.

1. Home office deduction
The home office deduction is one of the most popular self-employed tax breaks and also one of the most abused. You’re allowed to deduct expenses like electricity, heating, property taxes, and even your homeowners insurance as they relate to your home office. So if, for example, your home office takes up 10% of all the square footage in your home, you could deduct 10% of all the bills listed above as business expenses.

The big catch here is that you can only deduct home office expenses if that room is solely or primarily used for business. You cannot consider your living room as your home office just because that’s where you work from. You probably use it just as much, if not more, for personal purposes so it would not qualify as a deductible expense.

2. Self-employment tax deduction
Everyone pays Social Security tax and Medicare tax, as mentioned earlier. Social Security tax is 12.4% of your income and Medicare tax is 2.9%, for a total of 15.3%. You’re only responsible for half of that when you have an employer. Your company pays the other half. But when you’re self-employed, you must pay it all on your own.

The good news is that the government enables you to write off half of what you pay in these taxes (your employer portion) so you don’t have to pay income tax on this amount. This puts self-employed workers on an equal footing with traditionally employed workers.

3. Travel expenses
Whether driving to see a client in your local area or flying across the country to attend a conference, you can deduct any travel expenses you incur on behalf of your business. This includes flights, rental cars, hotel stays, and even ride-sharing fees. If you’re driving your own vehicle, you can deduct 58 cents for every mile on your 2019 tax bill. In 2020, this drops to 57.5 cents per mile.

The government isn’t just going to take your word on these expenses, so keep documents to prove what you spent. The same goes for the home office deductions you plan to claim above: Keep receipts or else the government could disallow them if it audits you.

4. Office supplies
Simple things like paper and pens, all the way to expensive pieces of equipment you buy for your business, can be tax-deductible, as long as you use them primarily for business and you keep all receipts to prove your expenses. Go back through your bank and credit card statements for the last year and note any business-related expenses you may have forgotten about. Highlight them or record them on a separate sheet of paper so you have all the numbers you need when you’re ready to file your return.

5. Professional education
Attending conferences, taking a professional development course, or pursuing an advanced certification to improve the quality of service you offer your customers are all deductible expenses as long as they relate to the business you’re currently running and you have the documents to prove your expenses.

Courses to help you branch out into a new, unrelated business wouldn’t count, though. It’s fine to write off a course in graphic design if you’re already a graphic designer, because it can help you improve your skills and the services you offer. But if you run a bakery and just decide to take a graphic design course on a whim, you can’t count this as a business expense.

6. Advertising
Paid advertising, like ads online or a TV or radio commercial, is a deductible business expense. The same goes for maintaining a business website and any billboard space your company pays for. Keep track of how much you spend on advertising throughout the year and hold on to those receipts.

7. Health insurance premiums
Self-employed workers don’t have an employer to help them cover the cost of their health insurance, so the government enables them to write off their premiums. This only applies to health insurance that you’re paying for on your own. If you get health insurance through your spouse’s company, you cannot write this off even if you’re self-employed. But you can write off premiums for yourself, your spouse, and any dependents if you pay the full cost of the health insurance premiums yourself.

This isn’t a comprehensive list of all possible self-employed business deductions, but it should give you a sense for what you can and cannot write off. Only expenses that are primarily or solely for your business are tax-deductible and you must have documents to prove all of these deductions.

And remember this list as you move into 2020, so you can start keeping records of all tax-deductible expenses to make next year’s tax season go much smoother.

5 Ways that the Federal Income Taxes Will Be Different in 2020

5 Ways that the Federal Income Taxes Will Be Different in 2020

​1. No individual mandate penalty
Most of the tax code changes stemming from the Tax Cuts and Jobs Act of 2017 took effect in 2018. One exception is the change to the shared responsibility payment, which took effect in 2019.

The shared responsibility payment — commonly referred to as the individual mandate penalty — had applied to folks who were required to have health insurance under the Affordable Care Act but who didn’t get coverage and didn’t qualify for an exemption.

If you owed the penalty, it was due when you paid your taxes.

Starting with 2019, however, there is no longer a penalty. So, folks who didn’t have health insurance in 2019 will not owe the penalty when they file their taxes in 2020.

2. No alimony deduction
Elimination of the alimony deduction is another Tax Cuts and Jobs Act change that took effect for tax year 2019 rather than 2018. For divorce and separation agreements made or modified this year or thereafter, alimony payments will not be deductible, says IRS Publication 5307.

So, a spouse who got divorced this year and paid alimony in 2019 cannot write the payments off on a tax return in 2020. That also means that a spouse who got divorced in 2019 and received alimony this year cannot count the payments as income.

3. Higher Health Savings Accounts contribution limits
Health savings accounts are another type of tax-advantaged account for which the contribution limits generally increase as the years roll along.

HSAs are not strictly for retirement savings, although you can effectively use them as retirement accounts, as we explain in “3 Reasons to Get a Health Savings Account.”

The 2019 contribution limits for people who are eligible for an HSA and have the following types of high-deductible health insurance policies are:

Self-only coverage: $3,500 (up from $3,450 for 2018)
Family coverage: $7,000 (up from $6,900)

4. Higher standard deductions
Standard deductions are somewhat higher for tax year 2019 on account of inflation. The IRS reports that they are:

Married filing jointly: $24,400 (up $400 from last year)
Married filing separately: $12,200 (up $200)
Head of household: $18,350 (up $350)
Single: $12,200 (up $200)
The standard deduction reduces the amount of your income that’s subject to federal taxes. So, if a married couple filing a joint tax return are eligible for and choose to take the standard deduction on their 2019 return, they would not be taxed on the first $24,400 of their taxable income from 2019.

5. Higher income brackets
Income tax brackets are also somewhat higher for tax year 2019 than they were for 2018 on account of inflation.

The IRS reports that the tax rates and corresponding income brackets for 2019 are as follows for folks whose tax filing status is single:

37% tax rate: Applies to incomes of more than $510,300
35%: More than $204,100 but not more than $510,300
32%: More than $160,725 but not more than $204,100
24%: More than $84,200 but not more than $160,725
22%: More than $39,475 but not more than $84,200
12%: More than $9,700 but not more than $39,475
10%: $9,700 or less

2020 Tax Season Dates

2020 Tax Season Dates

2020 Tax Season Dates

Alright, it’s time bust out your calendars and circle some important dates so that you won’t make the mistake of waiting until the last minute to file your taxes.

While Tax Day isn’t until April, waiting until then is a recipe for disaster. Not only is waiting until April 15 more stressful than going Xmas shopping on Christmas Eve, but you’ll miss out on some of the benefits of filing your taxes early.

With that in mind, here are some important dates to keep in mind as tax season rolls around:

  • Late January 2020: The IRS hasn’t confirmed a specific date yet, but this will be the official start of tax season—the day the IRS begins accepting and processing your 2019 tax returns. So, if you have all your tax forms and information in order by then, you can get your taxes out of the way before the snow in your front yard melts.
  • January 31, 2020: You should have online access to your W-2 form—the form employees use to report their income—or have it delivered to you by your employer by this date. So, check your mailboxes! If you did freelance or contract work for a business or client, then you might get a 1099-MISC form that you’ll use to report your self-employment income. If you haven’t received your forms by the end of January, reach out to your company’s HR department to get that sorted out.
  • April 15, 2020: This is the dreaded “Tax Day”—the day your 2019 income tax return is due to Uncle Sam. It’s also the last day to request a six-month extension if you need more time to file your taxes. But an extension to file is not an extension to pay—you still need to pay the IRS what you owe in taxes to avoid paying a late penalty and getting charged interest on your unpaid taxes.
  • June 15, 2020: If you live overseas or you’re on military duty outside of the United States, your taxes are still due on April 15—but you’re given an automatic two-month extension to file your taxes (without needing to request one). However, if you file later than April 15, interest will be charged on the taxes you owe starting from April 15.
  • October 15, 2020: Got a six-month extension to file your 2019 taxes? This is the deadline to file those tax returns.

What if you’re self-employed and pay quarterly taxes (or estimated taxes) throughout the year? Here are the deadlines for your 2020 estimated taxes:

2020 Quarterly Tax Deadlines

First Payment April 15, 2020
Second Payment June 15, 2020
Third Payment September 15, 2020
Fourth Payment January 15, 2021
5 TAX RECORDKEEPING TRICKS FOR VEHICLE AND TRAVEL COSTS

5 TAX RECORDKEEPING TRICKS FOR VEHICLE AND TRAVEL COSTS

One of the most tiring chores for a business is keeping all required records related to a vehicle and business travel. These records are needed for tax and financial purposes. For taxes, the law is very specific on the records you’re required to keep if you want to deduct your expenses. Anything you can do to save yourself and your staff time and effort without risking write-offs is welcome.

1. Use an app
If you use a personal vehicle for business, you usually need an odometer reading for each business trip to show the portion of vehicle usage for business. This means jotting down the odometer reading at the start and end of each trip to see a customer, go to the bank, or visit a vendor. But this can be automated for you if you use an app designed for vehicle recordkeeping. The GPS on your mobile device reads the exact travel distance for each trip, noting the time and date. You only have to add to this record the purpose of the trip. What’s more, you can find an app that ties into your other accounting system (QuickBooks has its own app) to further simplify tax return preparation.

You can also use an app to keep track of your travel expenses while away on business. Be sure to check on all of the required information needed to deduct these expenses in IRS Publication 463.

2. Rely on sampling
IRS regulations permit you to use a recordkeeping method called sampling. This means if you have adequate records for a part of the year, you can extrapolate the results for the full year. For example, if you keep good records for the first week of each month that show that 65% of the use of your pickup is for business purposes, and your invoices and bills show the same business pattern for the rest of each month, you can treat this partial record as proof of 65% business use for the entire year. Similarly, you can keep records for one full month as proof of the full year’s vehicle usage, as long as the month is representative of your driving pattern for the year.

3. Scan receipts
Instead of saving scraps of paper, hotel printouts, and other written evidence of costs related to business travel, just scan them into your mobile device. Make sure you have a scanner app on your device.

The challenge with scanning receipts is to have a system for organizing them so they can be readily retrieved if or when needed.

4. Forget receipts
When you travel or are out and about in town on business, you don’t need to retain receipts if the cost of the expense is less than $75. For example, on an out-of-town business trip if you take a taxi from the airport to your hotel at a cost of $50, you don’t need a receipt (but must follow other recordkeeping rules for the expense).

But the $75 rule does not apply to lodging. So, if you stay at a Travel Lodge, you’re going to need a receipt regardless of the cost.

5. Rely on per diem rates
Instead of trying to substantiate lodging and meal costs while traveling away from your regular business location, you may be able to use a government-set daily rate:

GSA.gov has per diem rates. There is a basic rate fixed for the government’s fiscal year ending September 30, with higher rates for certain destinations.
IRS high-low substantiation rates: one rate for most locations within the continental U.S., but a higher one for travel to set locations. The rates also apply for the government’s fiscal year (those for FY 2019 are here ).
Note: Self-employed individuals can use per diem rates only for meals and incidental expenses (not for lodging).

Final thought
Work with your CPA or other tax advisor to make sure your recordkeeping practices for your business are in line with IRS requirements and financial reporting standards.

California to have highest gas prices in nation when new gas tax kicks in July 1

California to have highest gas prices in nation when new gas tax kicks in July 1

When the new gas tax kicks in July 1, California will have the highest gas tax in the country.

The new gas tax will add an additional 5.6 cents per gallon of gas.

Consumer Watchdog President Jaime Court argues even though the new gas tax is expected to generate more than $50 billion over the next decade for much-needed road repairs, road infrastructure and transit upgrades, consumers shouldn’t be stuck with the bill.

“I had an issue with the tax increase when it went into effect because I felt that it should be paid for by the oil refineries excessive profits,” he said.

With the state average at over $4 a gallon, motorists pay close to $1.20 more per gallon at the pump than the national average. The state energy commission reports 70 cents of that difference is attributed to tougher gas standards and environmental regulations. Court claims otherwise.

“The state of California is investigating now the high cost of gas in this state… I know what it is because I look at the oil refineries profit reports. It’s gouging. When the oil refineries are making more off California gasoline than they make anywhere in the rest of the nation, we know that that profit is gouging,” Court added.

Court said he’s working with the governor’s office to rein in oil companies providing relief for consumers at the pump.

“We are an isolated market, and we have five oil refineries that control 90% of the gasoline in this state in terms of making it, and also in Southern California, control 80% of the retail gasoline stations,” he added.

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