Self-employment brings many benefits—the flexibility to work on your own schedule, freedom from office politics, and independence to make your own way. Self-employment also brings some challenges, including more complicated tax returns. One of the benefits of self-employment is that you can deduct your business expenses from your taxable income. Many self-employed individuals are hesitant to take these deductions, though, believing that claiming too many deductions will make the IRS more likely to flag their return for audit. While excessive deductions can raise red flags and draw an audit, claiming legitimate business deductions does not. Some do not even raise a yellow flag, as they are considered standard.

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The Home Office Deduction

One of the most common self-employed tax deductions is the home office deduction. Through this, you can write off a portion of your home maintenance expenses and utilities to account for your business use of a portion of your home. To take the deduction, however, the IRS does require that you comply with the exclusivity rule. This means that your home office space must be used exclusively for office work. Although it does not have to be a completely separate room, the office space cannot be a multipurpose area—for instance, the office can’t double as a guest room and you can’t count your dining room as your office if your family still eats dinner there. These rules only apply if your office is in the same building as your home. Expenses associated with an office in a separate building, even on the same lot as your house, can be deducted as business expenses, but they won’t be taken as a home office deduction.

Business Supplies and Services

You can also write off business supplies and services that promote the practice of your business or provide a benefit of some kind to your business. Some of the more common deductible expenses include:
  • Computers and peripherals
  • Reference books, how-to books, and other publications
  • Membership in professional or industry associations
  • Office supplies
  • Advertising
  • Professional services for your business, such as bookkeeping or legal fees

The IRS only requires that you save receipts for expenses more than $75, but as a general rule, you should save all your receipts. You can scan them into the computer and print them off as needed, but it's best to keep them on hand in some form. If you make an error on your taxes or claim a deduction inappropriately, the IRS may require you to show proof of an expense, regardless of its amount. Saving all of your receipts and noting the business purpose of each expense will help you respond effectively to any questions from the IRS.

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Get Started Incorporate your Business Answer a few questions. We'll take care of the rest