If you're self-employed, you understand the importance of maintaining a strict budget. Like most folks who work for themselves, you probably save a great deal of the money that you earn in order to satisfy your debts for the coming tax year. Although it's likely that you pay Quarterly Estimated Taxes every three months, you may keep an extra reserve fund on hand. If the IRS claims that you've underpaid your taxes, this reserve can prove useful. Unlike most salaried taxpayers, self-employed taxpayers often don't receive year-end tax refunds.
However, the tax code is set up to benefit self-employed taxpayers in a few key ways. For starters, self-employed taxpayers can deduct many everyday expenses from their taxable incomes thanks to a useful loophole in the IRS's regulations. According to these rules, self-employed individuals who work from home can deduct a substantial proportion of their homes' overhead costs.
This deduction is based upon the square footage of the space in which a given self-employed person works. It's expressed as a simple ratio: A self-employed person who works in a room that takes up 10 percent of his or her home's total square footage may claim 10 percent of the home's overhead costs as a tax deduction. This may include utility bills, paper goods and other essential expenses.
Self-employed people also enjoy a lesser-known tax deduction: the Self-Employed Health Insurance Deduction. If you haven't been taking advantage of this deduction, you'll want to begin doing so immediately. Depending upon your total healthcare costs, it may be one of the most valuable deductions that you're eligible to claim.
The Self-Employed Health Insurance Deduction permits you to deduct all of the health insurance premiums that you pay over the course of the tax year. As a "top-line" subtraction from your income, you can still claim this deduction after exceeding your itemized-deduction limit. You may also claim it on top of the personal deduction that every American taxpayer may claim.
To take advantage of the Self-Employed Insurance Deduction, you'll need to tally up your total annual health insurance premiums. In most cases, this will simply entail multiplying the value of your monthly premium by 12. Once you've determined this figure, enter it on Schedule C of your tax return. Unless you earned no self-employment income or paid more than about 33 percent of your income to your health insurer, there are no limits to the potential value of this deduction.