Manage my business

6 Tax Tips for the Self-Employed

Being self-employed offers many advantages over being a W2 employee but it can get tricky when it comes to taxes. We’ve put together 6 tax tips for the self-employed that can benefit every freelancer, small business owner and self-employed worker out there.

Tax tip: Record all your expenses

One of the best pieces of advice we can offer is to stay on top of your expenses. Not only will this help the self-employed during tax time, but it will also help you stay on top of your business. Knowing exactly how much you’re spending will give you a better understanding of the financial health of your business.

When it comes to taxes, recording all your expenses can lead to a major write-off. Remember, you can deduct virtually any businesses expense as long as it’s ordinary and necessary, directly related to your business and for a reasonable amount. The IRS requires you have adequate proof of these expenses, though.

Know your tax due dates

If you’re going to pay your taxes, you should know when they’re due. Even if you pay a tax pro to handle this, it’s still important to know the tax due dates.

As a freelancer/small business owner/self-employed worker, you’ll likely have to pay estimated quarterly taxes as part of the Self-Employment tax.

Tax tip: Know how your business is organized

How you’re taxed depends on how you’ve legally organized your business. Most self-employed workers are sole proprietors due to the straightforward nature and low cost for setup. A sole proprietor isn’t treated as a separate business entity from the owner, so business income earned and expenses get passed through.

If you’re thinking about incorporating as an LLC or entering into a partnership, we’ve put together an article outlining the impact on your business’ taxes.

Tax tips for self-employed: Get the most out of your miles

Many self-employed workers forget that every single business drive can lead to a tax deduction. But, you can only do this if you’re tracking your miles and keeping an accurate mileage log.

The IRS allows you to write off business vehicle travel on a cents-per-mileage. While that may not seem like a lot at first glance, just think about how quickly that can add up. Every trip to a client’s office, to pick up supplies, to a meeting or any other business drive can lead to money back in your pocket at tax time.

Tax tip: Writing off health insurance

If you’re self-employed, the IRS allows you to deduct the costs of your health insurance premiums. This deduction can include your dental, long-term care and the premiums that apply to you, your spouse and your dependents.

Keep in mind, you can’t take this write-off if you’re eligible to take part in a subsidized health insurance plan. An example of this scenario would be if you’re self-employed but your spouse is a W2 employee with subsidizing insurance plans.

The IRS also allows you to deduct the transportation costs that are primarily and essential to medical care. This can include expenses like bus, train, taxi and ambulance services, as well as the costs of using your personal vehicle. You can also deduct 17 cents per mile (in 2017) for your medical mileage.

Don’t forget to write off the business use of the home

If you work out of your home or use part of your home for business, you may be eligible for a home office deduction. But, be sure you’re following the rules because the IRS can crack down on this. We’ve written in detail about the home office deduction but the key takeaways are:

  • You must use your home office exclusively for business
  • It generally applies to self-employed workers but there are instances where W2 workers can take it
  • There are two methods to calculate the write-off for business use of home
  • A qualifying home office can lead to larger overall driving deductions.

We’d love to hear any tax tip you think can help other self-employed workers. Feel free to leave your best tip in the comments.

About the author

Marin Perez

Marin is part of the marketing team at Microsoft. He's excited to see how entrepreneurs can better start, manage and grow their businesses.

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The Growth Center does not constitute professional tax or financial advice. You should contact your own tax or financial professional to discuss your situation.