Tax professionals may consider brushing up on tax tips available to self-employed individuals. Practitioners can also bolster their standing as trusted advisors by sharing tips, and coaching clients and prospects to save them money on their tax bills.
It’s hard to believe the end of the year is almost here. For the self-employed, it means the countdown is on to reduce 2017 net income by making tax-deductible purchases related to work. This may include educational expenses, such as taking a class or buying materials related to improving their business. Technology-related purchases, including computers and mobile phones, are also deductible; in fact, up to $500,000 in equipment purchases are eligible for writing off on the tax return. However, note that this amount is reduced if your client puts more than $2 million worth of new assets into service during the year.
Here are some other deductions available to the self-employed:
Business Use of a Home: If a client uses part of his home regularly and exclusively for administrative, managerial and other business-related activities, he can claim a home office deduction. Expenses that qualify include utilities, rent, mortgage interest, depreciation and cleaning. Overall, the deduction is based on the square footage of the home used for the business.
Automobile Expenses: If your client travels for business purposes, he may deduct the dollar value of miles traveled, even for short distances. He can claim the actual expense incurred or use the standard mileage rate prescribed by the IRS, which is 54 cents in 2017. However, be sure to advise your clients that the IRS allowable mileage rate may change from year to year. Air, bus and train fares related to work also can be written off.
Health Insurance Premiums: Self-employed clients are allowed to deduct what they pay for medical insurance for themselves and their families, and it doesn’t matter if they itemize. It also doesn’t matter how high their income is, but remember that they are not allowed to take this deduction if they are eligible for health insurance through a spouse’s job.
Self-Employment Taxes: Clients have to pay the full 15.3 percent self-employment tax to cover Social Security and Medicare, but they are allowed to write off one-half of what they pay. Just as with health insurance premiums, they do not have to itemize in order to qualify for this deduction.
Contributions to a SEP IRA: Clients can increase their nest eggs and save on their taxes by making contributions all the way up to the filing deadline and deduct contributions as a business expense. For 2017, business owners can contribute up to 25 percent of income or $54,000 to their SEP IRA.