Self-Employed Tax Deductions & Employee Salaries

    

Selfemployed status opens you up to the same tax deductions of a small business, plus the added benefit of claiming a home office deduction. These tax deductions include such items as employee wages and related benefits, travel expenses, office supplies and equipment, and software and subscriptions. The key to successfully taking tax deductions for a self-employed person without escalating the fear of an audit is proper documentation.

Home Office

• For years, horror stories filled with auditors, back taxes, and fines and penalties have surrounded the home office deduction. The home office deduction need not be feared provided you claim only the space and associated expenses truly devoted to the business and not shared assets for personal use only. Establish a room or a part of the room for work-related endeavors and avoid using business equipment, such as computers, for personal use. Measure the square footage of the area and use it as the basis for deducting a portion of the mortgage, utilities and insurance as a business expense.

Employee Expenses

• Employee salaries, related taxes and benefits, such as retirement and insurance, are valid expenses related to self-employment. As with other business deductions, these expenses can only be deducted to the extent you have income directly related to your self-employment. Any additional loss can be carried over to offset future profits but the loss cannot be used to offset income from other sources, such as a spouse's wages or investment income.

Office Goods

• Office supplies, equipment and furniture are all tax deductible, provided they are devoted only to work. Sharing a computer with the family, using reams of paper to print out your daughter's term paper and devoting the top two shelves of the home office bookshelf to your wife's Danielle Steel collection can raise doubts in the minds of the IRS as to the whether not only the office goods but the entire space is dedicated to the business. If they are in doubt, they will disallow the deductions.

Travel Expenses

• Travel expenses are tax deductible. When considering travel expenses, for purpose of this article, think of such expenses as mileage, car rentals, car maintenance, car payments, hotels, meals and entertainment. The key to claiming travel expenses is documentation. This means keeping those pesky receipts and tracking mileage rather than guessing. Ideally you will keep a business journal, detailing who you took to lunch and what you discussed. Be aware there is nothing wrong with taking your spouse on business trips, but the expenses related to her inclusion may not be deducted.

Read more: Self-Employed Tax Deductions & Employee Salaries | eHow.com http://www.ehow.com/info_12003554_selfemployed-tax-deductions-employee-salaries.html#ixzz1sQljBnbz