Tuesday, March 3, 2009

Tax Rebate and Deductions for Self Employed

If you are self employed here is a list of tax deductions which can benefit you.

  1. Since you are self employed, you can contribute 25% of your Adjusted Gross Income (AGI) towards a Simplified Employee Pension (SEP) and claim that full amount. For example, lets assume your AGI is $40,000 anually. Allowable limit towards SEP would be 25% of AGI ie. $10,000. You can deduct this $10,000 from your taxable income.
  2. You can deduct costs incurred while making business phone calls, lodging, transportation, subscriptions for work related material, association membership payments etc. if it exceeds 2% of your AGI. Assuming an AGI of $40,000 - if your miscellaneous expenses are $1000 which is greater than 2% of AGI ($800), then you can deduct $1000 from your taxable income.
  3. You can avail standard deduction on your taxable income. If you are single you can avail $3500, if you are the sole earner for your family you can avail $8000, if you are filling along with your spouse you can avail standard deduction of $10,000.
  4. If you have dependents to support then you can also avail a Personal Exemption which stands at $3650 as of 2008. Dependents are defined as children or elderly whom you support financially and bear upto 50% of their costs. 
  5. As a self employed individual, you are also entitled to a deduction of half of your AGI. For example if your AGI is $40,000, then you can deduct $20,000 from your taxable income.
  6. If you are self employed, you are still entitled to tax deduction on interest payed on home mortgage. 

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