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6 tax deductions self-employed workers should know

There are a host of tax deductions available to self-employed individuals that can generate real savings when filing your tax return. As you prepare to file your 2022 taxes, here are a few deductions you should be mindful of:    

  1. Home office expenses: If you’re using an area of your home regularly and solely for business, you may be able to deduct expenses for a home office from your taxable business income.     

  2. Office supplies: Hang on to those receipts for pens, paper and printer ink as you may be eligible to deduct the total cost of your office supplies.   

  3. Social Security: Remember that if you’re self-employed, you’ll be paying more Social Security taxes than if you were on the payroll of a company. However, you can deduct half of these taxes on your return.  

  4. Vehicle expenses: If you use your vehicle for business, you can deduct either the actual expenses or the standard mileage rate, based on the business use of the vehicle. For the first half of 2022, the standard mileage rate is 58.5 cents per mile, and it increased to 62.5 cents per mile for the second half of the year.

  5. Section 179: This part of the tax code allows profitable business owners the opportunity to deduct up to the full cost of qualifying capital assets — like furniture, equipment and technology — immediately rather than depreciating them throughout their use. Any unused deductions can be carried forward and put toward next year’s tax return.  

  6. Food and beverages: The stimulus bill passed in December 2020 changed the deduction for meals, allowing businesses to deduct 100 percent of their qualifying food and beverage expenses if purchased from a restaurant in 2022.    

Curious about what deductions you might be eligible for on your 2022 tax return? Padgett’s talented network of CPAs, EAs and tax professionals near you can help navigate the confusing world of tax planning and filing. Find an office near you today! 

Can You Claim A Mileage Deduction When Working From Home?

While Zoom meetings can start to wear thin, removing the daily commute is a huge bonus afforded to those small business owners who are or who have already transitioned from a physical location to a permanent work-from-home setup. 

Generally, the cost of travel between your home to your main workplace is a non-deductible commuting expense. But what if your main workplace is your home office? If you’re self-employed and meet the qualifications of a home office, a mileage deduction for business travel from your home office is allowed. For employees who meet the qualifications of a home office, a mileage reimbursement from the employer for business travel from your home is allowed.  

For your home office to qualify as your principal place of business, the space must be exclusively used for the business. Employees must also show that the home office meets the “for convenience of the employer” test to qualify.  

An employee’s home office is deemed to be for an employer’s convenience only if it is: 

  • a condition of employment 
  • necessary for the employer’s business to properly function, or 
  • needed to allow the employee to properly perform his or her duties. 

This test is not met if you simply use a home office for your convenience or because you can get more work done from home. Employees who are unable to meet these requirements will not be allowed a mileage reimbursement.  

Even if you qualify for a home office deduction as self-employed person or employee, you will also need to maintain adequate records to substantiate your mileage, such as a log or record-keeping app through your smart phone to claim a deduction. You should include the date, the mileage (preferably the beginning and ending odometer readings), and the business purpose for each trip.    

This will be especially important if you are using the standard mileage rate method rather than the actual expense method in 2022. The IRS raised the standard mileage rate from 58.5 cents per mile to 62.5 cents per mile effective July 1st in response to the increase in gas prices nationwide. You will need to track your mileage for the first half of the year and the last half of the year to maximize your deduction. 

If you are working from your home, Padgett’s nationwide network of trusted small business advisors and tax professionals can help you determine if you qualify for these deductions to maximize your tax savings. Find an office near you today! 

We encourage you to contact us with any questions.

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