As a self-employed individual, you know how finances can be stressful, especially with taxes. Fortunately, some tax deductions and tax credits are available for self-employed people that can help you keep your stress levels down and better your bottom line. 

In the previous article, we listed the three best tax breaks you can benefit from as a self-employed individual. In this article, we'll be discussing three more to help you save up further on your finances:

Deduction for Qualified Business Income (QBI)

People can claim tax deductions for small businesses, but most people don't realize that the deduction can directly cut their taxes.

For example, if your business grosses $150,000 per year, you can receive a tax deduction for any business expenses related to the business. Essentially, this means that the expenses reduce your taxable business income.

For example, say you run a moving company and have $100,000 in expenses and $50,000 in income. Your taxable income is $50,000. Your tax bill is calculated on taxable income rather than gross income. You will have to pay tax on your income, but you will receive a tax deduction for your expenses.

Business Use of Vehicle

If you typically work out of your vehicle—a car, truck, recreational vehicle, or van—you can deduct its business-related costs such as gas and repairs. To qualify, you must use your vehicle for business purposes more than 50 percent of the time you use it.

In addition, you can deduct the business portion of expenses, such as your deductible mileage. If you utilize your car 90 percent of the time for business, you can remove 90 percent of your costs. This deduction can be valuable because you may be able to pay for many things without having to redo your taxes at the end of the year.

It can also help you save a lot of time. For example, if you typically use your vehicle 50 percent of the time for business and 50 percent for personal use, you can just write off 50 percent of your costs. You don't have to go back and add up the business portion of your expenses. This can save you a lot of time on your tax return.

Retirement Tax Shelters and Credits

If you are self-employed or have a small business, you probably have a retirement plan. You can also claim tax credits for retirement contributions. Many people don't realize that they can claim the retirement tax credits on their self-employment taxes.

For example, if you contribute to a Traditional Individual Retirement Account (IRA), you can receive a tax credit for up to $2,000. If you are married and file jointly, you can receive a tax credit for up to $2,000 if you contribute to a Roth IRA.

You can claim a credit of up to $1,000 for contributing to a Simplified Employee Pension or SEP for additional credit. You can also claim a credit of up to $500 if you meet specific requirements regarding Coverdell Education Savings Account contributions.

Conclusion

You can deduct many items on your self-employment taxes as a self-employed person. Many taxpayers don't realize this, but it's essential to understand your tax benefits. Utilizing these tax deductions can lower your self-employment tax bill and potentially save yourself a good chunk of money!

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!