Since the arrival of COVID-19 in early 2020, much has changed for working Americans. Some people involuntarily lost their jobs, while a host of others have voluntarily resigned to chart a new course. They’ve become freelancers, gig workers, or small business owners, all of which are categorized as “self-employed” according to the IRS.
While the newly self-employed are enjoying their newfound freedom from being an “employee” to entrepreneur refreshing, they’ve also found that life can get more complicated tax-wise. They’ve discovered that they have more requirements to file and pay their taxes, such as:
- Quarterly estimated tax payments
- Payroll tax deposits and filing
- Reporting payments to contractors each year
- Reporting sales tax
- State and local licensing requirements
These rules mean they’ll interact more with the IRS and their state, which opens them up to greater scrutiny.
If you find yourself in the classification of self-employed in 2022, you’re going to want, and need, all of the tax write-offs available to you. The good news is they’re plentiful, but the bad news is many people who work for themselves don’t know it and fail to take advantage of them.
To make sure that doesn’t happen to you, here are some tax write-offs for the self-employed in 2022 that you need to know about.
1. Home office tax deduction
If you work from home and use part of it solely to conduct your business, you may be able to deduct a portion of your rent or mortgage, property taxes, repairs and maintenance, utility costs, and similar expenses.
While at first glance this looks great, the IRS is strict on allowing you to claim this home office deduction. In their words, the square footage you’re deducting must be used “exclusively and regularly” for business-related activities.
This means working at your dining room table or on the couch in your living room and claiming the home office deduction won’t be looked upon kindly by the IRS if you’re audited.
2. Self-employed health insurance deduction
If you buy health insurance for yourself or your family in 2022, your premiums might be tax-deductible unless you’re eligible to enroll in your spouse’s plan where they work and you choose not to. It may be because you don’t like the coverage or the cost, but you can't take the deduction no matter what the reason is.
[ Related: Insurance for self employed individuals ]
3. Continuing education tax deduction
Your business will only grow as much as you do personally, and the IRS wants your business to grow so you’ll pay more income tax.
So, if classes or courses you’re taking, or seminars you attend, are “qualifying work-related education,” you can deduct things like tuition, books, supplies, lab fees, transportation to and from the class, and other related expenses under the continuing education tax deduciton. However, these expenses are only deductible if the education “maintains or improves skills needed in your present work.”
4. Business vehicle tax deduction
Driving to meet clients, make pickups, or buy supplies can take its toll on your vehicle, but Uncle Sam gives you some deductions that will help you recoup some of that wear and tear.
Track your mileage daily, and at the end of the year, compute the total number of miles you drove your car for business purposes. Once that’s done, multiply that number by the IRS’ standard mileage rate for 2022, which is 58.5 cents per mile. Keep your mileage log handy in case you’re audited.
5. Retirement contribution tax deduction
You have a number of options when it comes to retirement-related tax deductions when you’re self-employed.
In addition to the standard or Roth IRA, SEP plan, or Keough plan, a choice that is becoming more and more popular is the “solo 401(k)”.
With this option, you can contribute up to $61,000 in 2022 (add an additional 6,500 if you’re age 50 or older) or 100% of earned income, whichever is less.
[ Related: The American retirement savings crisis, explained ]
6. Self-employment tax deduction
The self-employment tax you pay is deductible as a business expense. If you work for yourself, your tax rate is 15.3% of your net earnings, in addition to your personal income tax. The rate is the sum of the 12.4% Social Security tax and the 2.9% Medicare tax on your earnings.
7. Office supplies tax deduction
The cost of office supplies for things like pens, paper, staples, postage, and similar items can add up during the year. In most cases, their cost is deductible.
Larger items like computers, printers, or special equipment you use in your business are also deductible in the year you buy them if their useful lives are a year or less. If you can get more than a year’s use out of them, the IRS will let you deduct the depreciation of the item’s full cost over its useful life.
8. Phone & internet tax deductions
Just about everyone who’s self-employed can deduct all or part of their annual cell phone or internet bill.
You can deduct the entire amount of your bill if you have a dedicated line for your business cell phone or internet connection. If it’s not a dedicated line, you can deduct the percentage you use it for your business.
9. Advertising tax deduction
Letting people know that your doors are open for business opens up some self-employment tax deductions for you.
The IRS allows you to deduct advertising designed “to keep your name before the public if it relates to business you reasonably expect to gain in the future.” This could include business cards, online ads, flyers, or similar costs.
You can’t deduct advertising related to lobbying expenses or any program or advertising associated with a political party if any of the proceeds are intended for the use of a political party or candidate.
10. Start-up costs tax deduction
If you’re part of the “Great Resignation” and start your business in 2022, there may be some tax breaks available to you for start-up costs you incur. These include costs associated with getting your business up and running before it opens, such as grand opening advertising, employee salaries and wages if they’re in training, travel to obtain customers or suppliers, or consulting fees.
A final word
As a self-employed entrepreneur and part of the backbone of America’s economy, you deserve to take full and legal advantage of every tax write-off the IRS makes available for you.
To ensure you do, it’s recommended that you enlist the services of an accountant to help you prepare your taxes and enjoy every deduction you can. No, it’s not free, but the costs associated with your business’ tax preparation are deductible.
You will save some money by preparing your own taxes, but you’ll be taking time away from your business, and quite possibly leaving money on the table from missed deductions.
The information and content provided herein is for educational purposes only, and should not be considered legal, tax, investment, or financial advice, recommendation, or endorsement. Breeze does not guarantee the accuracy, completeness, reliability or usefulness of any testimonials, opinions, advice, product or service offers, or other information provided here by third parties. Individuals are encouraged to seek advice from their own tax or legal counsel.