BOSTON (CBS) – There are some decent tax breaks available for self-employed individuals.
You can claim a 100% deduction for your health insurance costs. This is a very expensive item in anyone’s budget. This deduction does not go on your schedule C but on the first page of the 1040. Average annual healthcare premiums for a family is over $9,000 in Massachusetts.
If you make a capital purchase for your business you normally would depreciate it. That is expense it over the life of the asset, usually 3 to 5 years. Small business owners are allowed to write off some of their equipment in the year they purchase it if they qualify for Section 179 expenses. The limit for this year is $560,000. Guaranteed to change for next year.
So take the time to evaluate what your profit will be this year and what your business needs are. A new computer, new printer, office furniture, software, new equipment? The deduction gets tricky for trucks and vans. No longer can you write the whole thing off if it can also be used for personal use. Certainly, a $40,000 saw for a woodworking shop would qualify for a full deduction. Equipment must be used at least 50% for business purposes.
If you are using your car in your business and do not itemize your expenses, the Standard Mileage Rate for this year is 55.5 cents a mile. This is the mileage rate for the cost of operating your car, van, pickup, or panel truck.
And it is not too late to do some retirement planning; set up a SEP-IRA, Simplified Employee Pension Plan, for yourself and if you have employees you will need to include them as well. You can contribute up to 25% of your income with a limit of $50,000 for 2012. The business makes the contributions for you and your employees.
If you contribute 25% of your salary for yourself you need to do 25% for all employees as well. Most brokerage firms and many mutual fund companies have IRS approved SEP-IRA prototypes for your use as well as online calculators to help you figure out how much you can contribute.
What I like best about the SEP-IRA is that you have until you file your taxes to set up the plan as well as to make the contributions. For most taxpayers that’s April 15 of next year but if you file an extension that extends your contribution date.
At least consider using an IRA to shelter some of your profit this year. IRAs are good for the part time consultant. Limits are $5,000 for this year with a catch up provision of $1000 if you are over 50!