One of the best ways to legally reduce your tax bill is to take advantage of tax deductions. A tax deduction is a reduction in your taxable income. It’s important to understand that a deduction is not the same as a credit nor is it as valuable as a credit, which acts as a gift card applied to the amount of tax you owe.
If you are thinking about becoming self employed or you’re already a self employed, you need to consider how to claim tax deductions and take advantage of it and the tax requirements that come with doing so.
If your are self employed, you need to manage your own taxes, and this involves submitting a self assessment tax return at the end of every tax year. And the best way to do this is to learn how to claim tax deductions and take advantage of it, of which there are many. If you are self employed, you can boost your income by claiming various business running costs, which reduces the amount of income tax that you need to pay. There are a range of tax deductions for self employed in the United State and everywhere in the world, some of which we have detailed below.
How to Claim Tax Deductions and Take Advantage of it If You’re Self Employed
There are various business running costs, and many of these can be deducted from your taxable profit. This is done as part of your self assessment tax return at the end of the year. Not all expenses are deductible, and there are strict rules about how much can be deducted if you use something for both business and personal reasons.
1. Claim a whole host of workplace expenses
If you want to learn how to claim tax deductions and take advantage of it, you can claim a whole host of workplace expenses. This includes the costs associated with running your business premises, office costs, equipment and tools. Stationery, rent, power, phone bills, printing, computer software and postage are all included in this.
2. Claim tax deductions for your transport
If part of your self employed work requires you to travel, you can claim tax deductions for your transport. This includes the cost of commercial vehicles, fuel, parking, public transport costs, hotel rooms, breakdown cover, business trips and more. You are not allowed to include the cost of travelling between home and work, fines or travel costs that aren’t related to your business.
3. Legal and Professional Costs
The cost of any legal and professional services are also tax deductible. This includes solicitors and accountants, should you need them.
4. Stock and Materials
Stock and raw materials that you require for work can also be included in your list of tax deductible costs. This includes goods for resale, raw materials and the costs associated with producing goods.
5. Marketing Costs
As a self employed worker, you might have to market and advertise your services, and this is tax deductible. This includes website costs, free samples, advertising in newspapers, email marketing and directories. You cannot include any costs arising from entertaining potential clients and customers.
6. Charitable Contributions
Once you start itemizing, one of the most common deductions is the one you take for charitable contributions. When you contribute to qualified charities, you can deduct those amounts from your income. These contributions include money you give to charitable organizations and churches (so your tithing counts), as well as donations of goods to charity. You can even deduct the mileage you travel in the service of charity. Just make sure you keep good records, and follow the rules of deduction.
7. Mortgage Interest
For many middle class families, the addition of mortgage interest to charitable contributions can tip the scales in favor of itemizing instead of taking the standard deduction. If you have a mortgage, the interest you pay might be tax deductible, and that can help you reduce your income. Look out for the 1098 from your lender, which includes the amount of interest you paid for the year.
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