Bookkeeping for the Self-Employed

Bookkeeping for the Self-Employed


Bookkeeping for the Self-Employed

Bookkeeping for the Self-Employed: The bookkeeping concerns of the self-employed are numerous and complex. Independent contractors, sole proprietors and other self-employed individuals are allowed to take certain tax deductions that are specific to their entity structure. These deductions include such items as home office expenses, car expenses, health insurance premiums and self-employment taxes, among other things. Although other types of businesses are allowed to take similar tax deductions, the tax code provides specific descriptions as to how they apply to the self-employed.  Keeping up with the bookkeeping tasks associated with tracking and documenting these tax deductions is essential to a self-employed individual who wants make maximum use of the tax code to reduce their outstanding tax liability.

The following are some of the common tax deductions available for use by the self-employed:

A self-employed individual must pay a 15.3% self-employment tax. The 12.4% Social Security portion of this tax is paid on earnings up to $117,000 while the 2.9% Medicare portion is paid on all earnings, with no ceiling. However, one half of the self-employment tax amount paid can then be deducted from the gross income of the business.

  • Home Office Deduction

The home office deduction is computed by determining what percentage of the home is used for business purposes. This percentage includes the portion of the home used to carry out business functions as well as the any portion used to store business inventory. Once calculated, the percentage is used to determine what parts of various home costs such as phone service, internet and utilities are business expenses. If a business is conducted out of a rental home, a portion of the rent payment can be deducted in the same way.

  • Rents and Leases

Rental and lease payments for vehicles, machinery or other business equipment are tax deductible business expenses.

  • Car Expense Deductions

A tax deduction is allowed for miles driven for business purposes as long as the deduction is backed up by the necessary documentation. Deductions are also allowed for portions of car insurance premiums and car repairs, with allowable amounts depending on whether an additional car is available for personal use and whether the business vehicle is used after hours.

  • Local Transportation Costs

The costs of commuting can be deducted if the business operates out of multiple offices or if local travel if is required to carry out normal day-to-day business activities. The cost of traveling between home and an outside workplace is not tax deductible.

  • Health Insurance Costs

The entire cost of health insurance, including those premiums paid for dental insurance and long-term care insurance can be deducted.

  • Interest on Business Loans and Credit Cards

Interest on bank loans as well as that incurred on business credit cards used to make business purchases is a tax deductible expense.

Although the tax code allows numerous tax deductions for independent contractors, sole proprietors and others who are self-employed, understanding what these deductions are and keeping up with the bookkeeping tasks necessary to make use of them can be a daunting task. This is especially so for someone who is not a professional accountant or bookkeeper. For this reason, the outsourcing of bookkeeping services is often a wise decision for a self-employed individual who is intent on making maximum use of available tax advantages.

If your business is seeking an outsourced bookkeeping solution, the experienced professionals at Orange County Bookkeeping can provide you with the expertise you are looking for. Our licensed accountants and bookkeepers are equipped to serve Orange County businesses of any size, structure or industry focus. Visit us today at  to learn more about our full range of bookkeeping, tax and business consulting services. Contact us by phone at 949.242.9852 at or by email at  to receive a free, no obligation consultation.


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