Most people don't understand tax benefits, but you can take advantage of them as self-employed people. Some of the benefits are straightforward, but others require careful planning to make the most of them. To help you out, here are three tax breaks available to self-employed taxpayers that most people don't realize exist.

Health Insurance Premiums

Many people don't realize that you can deduct the premiums on your taxes if you have health insurance for your self-employed business. For example, if your total health-insurance premiums for the year are $10,000, you can deduct $10,000.

Take the deduction on line 29 of Schedule C. As a self-employed person, you report your business income on Schedule C and report your expenses on Schedule C-EZ.

You may also be able to deduct your medical and dental expenses on Schedule A as an itemized deduction. However, you can only deduct these expenses to the extent they exceed ten percent of your adjusted gross income.

Home Office Expense Deduction

If you use part of your home for a business and it is not rented out, you can deduct part of the expenses—up to a certain amount—on your home-office deduction. If you use the office in your home exclusively for your business, you can deduct the entire amount of your expenses. You can even claim the business portion of any mortgage interest and property taxes you paid.

To claim this deduction, you need to be careful not to convert the entire home into a business. Instead, you can deduct only the portion used for business. For example, if you use part of your home for a business, the amount of expenses you can deduct is the percentage of the house used for business.

For example, if you use a 400-square-foot room part of a 2,000-square-foot home for your business, you can deduct 25 percent of your expenses. If you have a separate work area in your home, it doesn't matter how small. Deducting any percentage of the house used for your business is a valuable tax deduction.

Social Security Taxes

As a self-employed person, you don't have to pay Social Security. However, you can deduct half of your self-employment taxes from your income. When you do this, you can take an extra deduction on Schedule C. When you take the deduction, it may take you down to a lower tax bracket.

For example, if you earn $50,000 and have $10,000 in self-employment taxes, you can deduct $5,000. This results in a deduction of $5,000. You can then use this deduction to reduce your taxable income by $5,000.

Now, you are only left with $45,000 in taxable income. You will only incur a tax bill on $45,000 in revenue. This can help you reduce your tax bill by $1,000. Many self-employed people don't realize that they can claim this deduction.

Conclusion

If you are a self-employed person, you can take some valuable deductions. Understanding these three tax benefits is the first step toward ensuring you get the maximum amount of deductions. Making sure you file your taxes correctly is the second step. 

It would help you more financially to know other tax benefits that you can further deduct as a self-employed taxpayer, which will be discussed in the next article.

Tottax is a tax and accounting agency helping small businesses and their owners solve accounting problems. We do personalized business consulting, including tax planning and filing in all 50 states, depending on your needs and goals. No matter what your situation is right now, you can always master your finances and optimize your taxes with TotTax at your side! If you need assistance with your self-employed tax returns, we’ve got you covered. Get in touch with us today and let us know how we can help!