If you have your own business or plan to do so, you should know everything you can about the self-employment tax deduction, which can save you a lot of money if you do it. Many of these tax relief benefits are only available if you are self-employed and not if you are employed. All you have to do is use your personal Social Security number as your business tax identification number and then make sure you file under Schedule C or Schedule C-EZ and you’ll be ready to start benefiting from the deduction.
However, there is a difference between Schedule C and Schedule C-EZ and the benefits they can give you in terms of taking advantage of the self-employment tax deduction. The EZ form should only be used by those who have a smaller amount of expenses and end the year with a substantial profit. Some other things in terms of taking advantage of the reduction using the EZ form is that you must be a business with no employees, one that has no reason to claim a home office deduction and is not going to report any depreciation. If you qualify with these, you must use the EZ form; Otherwise, you should use only Schedule C to get the best you can from the tax reduction. Basically with a Schedule C you can report a loss, otherwise you can’t.
Let’s look at what you can claim using the self-employment tax deduction. First, you claim equipment expenses under what is called Section 179. Under this section, you claim any equipment purchased that year. There may be a limit on the amount that tends to change a lot, so consult Internal Revenue Service publication number 946 to help you determine the exact limit.
You can also claim trips under the tax reduction. This includes mileage and percentages of any food and entertainment purchased. As long as you keep good records and receipts, you would do well to claim it. You should also remember to keep this within the limits of business-related expenses.
You can also include health insurance, Social Security taxes, and self-administered retirement benefits in your self-employment tax deduction. This means you can include any premiums for yourself or your family members, as well as a certain amount of the social security tax payment you make, in any claim you may make to qualify for the deduction. The only problem is that your social security claim is only on Form 1040 and not Schedule C. As for self-directed retirement benefits, as long as you open a Keogh or Simplified Employee Pension and subtract any contributions you may make . to these plans. This can also only be done on Form 1040. But it’s worth the savings you can claim with a deduction.
One last thing you can claim under the self-employment tax deduction is a home office. Whether you use the office to store files and keep books or you don’t spend much time there, you can still claim this as part of your self-employment tax reduction.
As you can see, when it comes to claiming and receiving the benefits of being self-employed, it is worth it. As long as you keep careful and accurate records you can make the most of the reduction.
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