Overview
1. Credit Card Interest
If you made business purchases on your credit card, you might be able to deduct credit card interest on your Form 1040 federal tax return.
The IRS considers qualified business purchases as ones that are “ordinary and necessary” for the operation of the business. These can include your cell phone, internet, meals, salaries and wages, rent, utilities and interest.
2. Home Office Deduction
If you’re employed by a company, you’re no longer able to take the home office deduction. But if you’re self-employed and use part of your home for business, you may still qualify—even if you’re a renter. There are two options available to claim at tax time—the simplified option and the regular method.
Whichever method you choose, your home office must meet two requirements.
First, the IRS requires you to use it regularly and exclusively, which means that the office is used only for business purposes.
Next, it should be your principal place of business, which means that you use your office to have meetings and complete work. So if you routinely held meetings outside of your home, your home office may not qualify for the deduction.
The simplified option: You can use the simplified option to quickly determine your tax deduction. Simply multiply your office’s total square feet by $5 (up to a maximum of 300 square feet). If your home office is 300 square feet, then, you are entitled to take a deduction of $1,500 on your tax return.
The regular method: With this option, your tax deduction is based on the percentage of your home that your home office occupies. First, divide your home office square footage by your home’s overall square footage. Then, multiply the percentage you get by the sum of your home’s total allowable expenses to get the permissible deduction. If your home office was 300 square feet and your home was 1,500 square feet, you would deduct 20% of your allowable expenses (300 / 1,500 = 0.2).
With this home office deduction, you can claim home-related expenses only, such as rent, mortgage interest, insurance, taxes, utilities and other costs.
3. Training and Education Expenses
If you paid for work-related education expenses during the year, you might be able to take a deduction on your tax return. Your payment must be for education that maintains or improves your skills in your current line of work. However, if the education qualifies you for a new job or business line, it may not be considered deductible.
For example, if you provide home repair services and decide to take a home repair education course, you can claim it as a tax write-off. Since this course maintains and improves your current skills, it is considered deductible.
If eligible, you can deduct tuition, books, supplies, fees and transportation costs, among others.
4. Self-Employed Health Insurance Premiums
If you’re self-employed, health insurance can be costly—but you may be able to deduct it from your taxes. Amounts you can deduct include health care insurance premiums you paid for yourself, your spouse, dependents and any children under 27 who are on your health plan, regardless of whether you claim them on your return.
You have to report a net profit this year to use this deduction. If you didn’t, you can instead claim your premiums as an itemized deduction on your Form 1040 federal tax return, Schedule A.
5. Business Mileage
If you use your car for work, whether it’s driving to meetings or making deliveries, you can deduct your mileage from your taxes. However, if you use your car for personal and professional trips, you can only deduct business mileage from your taxes.
Like with the home office deduction, you’ve got two options when it comes to claiming mileage on your taxes.
The standard mileage rate is a specific rate you can multiply against the business miles you drove during the year. For the year 2022, the standard mileage rate is .58.5 cents per mile. For instance, if you drove a total of 10,000 business miles in 2022, you could deduct $5,850.
To claim the standard mileage rate, you must meet the following conditions:
You must own or lease the car
You must operate five or fewer cars at one time
You must not have claimed depreciation on your cars
Note: If you choose the standard method for a car you lease, you will need to use it throughout the vehicle’s lease.
The actual expense method allows you to deduct the actual business costs to operate the car. If you use the vehicle for both business and personal needs, you will have to determine which portion is for business.
Whichever method you choose, it is best you track your business mileage by keeping a log recording the dates and types of trips, odometer reading and any business expenses, like gas, oil, licenses, registration fees, repairs, tires, insurance, lease payments and depreciation.
Also, you should calculate the deduction amounts under both methods and choose the one that would generate the largest deduction. If you are using an online tax software program, it will request you enter both your actual vehicle expenses and mileage for the year. It will then calculate the best deduction for you.
6. Deductible Taxes
As a small business owner or self-employed person, you can deduct certain types of taxes.
These may include real estate taxes assessed by your state or local government, employment taxes paid from your own funds for employees, sales taxes and certain state and local income taxes. However, federal income taxes paid are not deductible.
Just keep in mind that you will need to deduct your taxes during the year you actually paid them. For example, if you’re going to claim state and local taxes on your 2021 tax return, you will need to make certain these taxes are paid by Dec. 31, 20210. This means you have to be very careful when making your payments and tax calculations and may want to consult your tax professional.