5 Substantial Self-Employment Tax Deductions for 2019-2020

• by secure_financial
• Posted on 27 January, 2020

1. The Mortgage. A portion of the mortgage or rent; property taxes; the cost of utilities, repairs, and maintenance; and similar expenses may be deducted. Generally, this deduction is only available to the self-employed; employees cannot take the home office deduction (keep in mind there are a few exceptions).
   
   Calculate the percentage of the home’s square footage that is used, in the IRS’ terms, “exclusively and regularly” for business-related activities. That percentage of the mortgage or rent, for example, becomes deductible. If the home office takes up 10% of the house’s square footage, 10% of those housing expenses for the year are deductible.
   
   
2. Education Costs. The costs of “qualifying work-related education,” including things such as tuition, books, supplies, lab fees, transportation to and from classes and related expenses. It works like this: Expenses are deductible only if the education “maintains or improves the skills needed in the present work.” This won’t work if the individual is looking to change careers and taking classes to learn another trade.
   
   Also, refer to the American Opportunity Credit which can lower a tax bill by up to $2,500. Another credit to look at is the Lifetime Learning Credit which just isn’t for undergrads, this credit applies to undergraduate, graduate and non-degree or vocational students where the individual can claim up to 20% of the first $10,000 paid towards tuition in 2019.
   
   
3. Health Insurance.  Individual policies purchased may qualify for a self-employment tax deduction. Medical and dental insurance premiums for the individual, spouse, and dependents who are younger than 27 at the end of the tax year. Long-term care insurance premiums also count, though there are specific rules.
   
   Here is how it works: It’s an adjustment to income rather than an itemized deduction, which means it’s not necessary to itemize to claim it. But here’s the letdown, if the individual is eligible to enroll in a spouse’s employer’s plan — even if they choose not to, maybe because it’s more expensive than purchasing their own — you can’t take the deduction.
   
   
4. Retirement Savings. Contributions to a solo or one-participant 401(k) plan of up to $56,000 in 2019 ($62,000 if you’re 50 or older) or 100% of earned income, whichever is less. In 2020, the limit is $57,000 ($64,500 if you’re 50 or older) or 100% of earned income, whichever is less.
   
   
5. Vehicle. Here’s what can be deducted: A little more than $1 for every two miles you put on the car for business purposes. Tally the number of miles driven in the car for business, multiply that by the IRS’ preset standard mileage rate which is 58 cents per mile in 2019 and 57.5 cents per mile in 2020 and deduct the total. Keep a mileage log which will be needed if audited.