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Deductions Allowed With Self Employment Taxes
from:Self employment taxes are assessed differently in each country, with much more generous incentives for self-employment in South and Central European countries. However, in the United States, you are responsible for paying just as many taxes as an employee and an employer combined. However, the flip side of that rather unfortunate coin are the rather liberal deductions you may take to offset self employment taxes that are sometimes burdensome enough to keep people out of self employment all together.
Between Medicare and Social Security tax, you are liable for over 15% taxation on your income derived from full or part time self employment over $400. That's over 15% on top of the usual income tax. Some people who own homes and property find themselves paying well over half their earning in some type of tax or another. Finding a way to do something about such high (and arguably unfair) levels of taxation. That the levels of self employment are over twice as high in countries like Italy and Spain is partly due to their very favorable laws regarding self employment taxes.
For starters, if you are lucky enough to earn over $100,000 or so (it goes up a bit every year), that additional income is not subject to the much larger (over 12%) Social Security component of self employment taxes in the US. You'll still have to pay on the Medicare portion of the tax, but this could represent significant savings.
You may also deduct a full half of your self employment taxes from your gross adjusted income when figuring the income tax portion of your total tax burden. Some might argue that deducting the whole amount would be a lot more fair, but again, these savings are still significant.
Many are able to claim the space of their home office as a deduction from their self employment taxes, taking the percentage of square footage it takes up in the home and multiplying that by your monthly rent or mortgage. The IRS only requires that the space be used for business only. The same goes for your office equipment and anything you legitimately spend money on for the sole use of your business. This can include furniture for the office, office supplies and even travel expenses. Everything related to business travel is 100% deductible except for meals, which are only 50% deductible.
If you work from home, you can take the entirety of your mileage from driveway to driveway as a mileage deduction. Leased automobiles that are used strictly for business are also deductible. Please note that expensive items that loose value with age may be depreciated rather than deducted from your self employment taxes – not both.
As long as you legitimately use something for business the cost of purchase and maintenance is very likely covered as long as you keep the receipts.
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