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What Are The Best Self Employment Tax Deductions In 2023?

Finance BY Soumava Jul 07, 2023
What Are The Best Self Employment Tax Deductions In 2023_

The tax code seems like taxing everything from businesses and professionals alike. However, there are many places in the tax code that allows self-employed individuals with a variety of deductions. The Tax Cuts And Jobs Act 2018 allowed many tax cuts to businesses and the self-employed. Out of these tax cut options, many of them are even temporary and will expire by 2025.

In this article, you will learn some of the most useful tax deductions for self-employed individuals as per the provisions of the tax code. Furthermore, we will also share the percentage of tax cuts and also how you can calculate your tax deductions in those particular cases. Hence, to learn more about the best tax deductions, read on through to the end of the article.

The Best Self Employment Tax Deductions That You Need To Know  

What Are The Best Self Employment Tax Deductions In 2023_

According to Investopedia,

It is important to note that tax laws are constantly changing, and these provisions may be modified or extended at any point before 2025. Therefore, reviewing the most common self-employed taxes and deductions is necessary to keep you updated on any changes required to your quarterly estimated tax payments.”

There are many people in the United States who work for themselves and are termed self-employed individuals. The government offers many tax deductions for these types of people to ensure that their businesses get a chance to grow. The following are some of the biggest self-employment tax deductions that you can get in 2023:

1. The Home Office Tax Deduction  

The home office tax deduction is one of the best tax deduction options available to self-employed people. If you are a self-employed individual and you use a part of your home solely for business purposes, then you will get tax deductions on it. You must understand here that particular home office space should not be used for any other purpose.

Here, the tax-deductible areas include property taxes, a portion of your mortgage or rent, repairs, and maintenance, cost of utilities, improvements, etc.

2. Health Insurance Deduction  

As a self-employed individual, if you have purchased insurance policies for yourself and your family, you can get a tax deduction on the premiums. The tax-deductible options you have here are

  • Medical and dental insurance premiums for you
  • Premiums for your spouse
  • Premiums for your dependents
  • Premiums for your children (younger than 27 at the end of the tax year)
  • Long-term care insurance premiums (with some specific rules as per IRS Publication 535)

3. Self Employment Tax Deductions  

According to Investopedia.com,

The self-employment tax refers to the Medicare and Social Security taxes that self-employed people must pay. This includes freelancers, independent contractors, and small-business owners. The self-employment tax rate is 15.3%: 12.4% for Social Security and 2.9% for Medicare.”

People who are fully self-employed have to pay the full 15% of the self-employed tax. Furthermore, there is an additional tax rate of 0.9% for Medicare if your income is above a certain amount. Here are the thresholds (as of 2023):

Tax Filing StatusThreshold For 2023
Married Filing Separately$125,000
Married Filing Jointly$250,000
Heads of Household$200,000
Qualifying widow(er) with dependent child$200,000

4. Deductions From Internet And Phone Bills  

You have the option of deducting the business portion of your phone and internet expenses. Here, you can only deduct those tax expenses that are directly related to your business. Here, IRS states that you do not have the option to deduct the cost of your basic local telephone service for your first telephone line. You need to have a second line.

5. Meals Deduction  

When you are traveling for your business, you are at a business conference, or you are meeting with a client, the taxes on meals that you pay for get some deductions. However, you have to ensure that your meal is not extravagant. You can deduct 50% of the meal’s cost if you keep the receipts.

6. Travel Deductions  

Talking of travel, you can get tax deductions here as well. However, your travel duration must last longer than an ordinary workday, and you are sleeping or resting somewhere away from the general area of your tax home. Furthermore, you must also have a specific business purpose planned before if you want your trip to be considered a business trip.

7. Deductions For Using Vehicles  

The expenses for your drive on business trips are eligible for tax deductions. Here, you will need to keep detailed records of your trip dates, purpose, mileage, etc. Here, your personal car trips are not eligible for tax deductions.

8. Business Insurance Deduction  

If you have business insurance policies, you are eligible for tax deductions while you pay premiums. According to Nerwallet.com,

There’s a dedicated area of Schedule C for deducting your insurance premiums. But make sure you’re deducting the right stuff. IRS Publication 535 has the details.”

9. Rent Deductions  

Do you rent a space for your office? You can get tax deductions for the amount you pay for the rent. The law also allows you to deduct from the rent you pay for any equipment for your office space. You can also get deductions in case of payments for canceling a business lease.

10. Startup Costs Deduction  

As per the rules of the Internal Revenue Service (IRS), you can deduct up to $5K for your business startup costs in the first year of your active business or trade. If your total startup cost exceeds $50,000, the $5,000 deduction is reduced accordingly.

Bottom Line  

Although there are many more self employment tax deductions provided by the IRS, the ones mentioned above are the popular ones. You must know of these tax deductions while you are starting out as a self-employed individual. As you are a self-employed person, you must review what you can deduct from your taxes each year.

From medical insurance, meals, and travel to business insurance and startup costs, there are tax deductions for the self-employed in many cases. Which of the tax deductions do you consider the most helpful for you? Share your views on them in the comments section below.

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A passionate writer and an avid reader, Soumava is academically inclined and loves writing on topics requiring deep research. Having 3+ years of experience, Soumava also loves writing blogs in other domains, including digital marketing, business, technology, travel, and sports.

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