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Self-employment Tax Deductions

If you're self-employed — either in a business for yourself, or carry on a trade or business as a sole proprietor or contractor — you could qualify for additional income tax deductions. If you work out of your home, there are even more opportunities to claim your expenses. Here are a few examples:

  • Deduct half of your self-employment tax.
  • The Section 179 Deduction generally allows you to write off up to $500,000 of business property other than real estate purchased in 2010 (for first year write-offs). Other limits may apply.
  • If you use a part of your home exclusively and regularly for business, you can deduct the business portion of rent, mortgage interest, real estate taxes, utilities, insurance and repairs.
  • You can deduct car expenses using either the actual expense method or the standard mileage rate (55 cents per mile of business use). If you use your car for both business and personal purposes and claim actual expenses, you can deduct only the business-use percentage of your expenses.
  • You can establish a retirement plan that may allow you to make contributions that exceed the amount you can contribute to a traditional IRA or Roth IRA. This deduction is not allowed for self-employment tax purposes.
  • If you have your own business, an income-splitting opportunity is to put your children on your payroll. What you pay them is a business deduction for you and earned income for them. You can do this only if they actually work for you, and you can't pay them more than their services are actually worth. In addition, the wages can be used as a basis for funding your children's IRA contributions, giving them a start on retirement.

 

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Laws on this topic may vary from state to state. This content is not meant to provide you with complete information and it is not intended to be legal or tax advice. It is recommended that you consult with your own attorney, accountant or other advisor regarding your specific situation.