5 Small Business Tax Breaks for Sole-Proprietors

As a sole proprietor, you need all the small business tax breaks that you can find. The amount of taxes that you pay can make a big difference in the overall success of your company. Here are a few tax breaks that you want to consider as a sole proprietor.

1. Health Insurance Premiums

One nice tax deduction that you can take as a sole proprietor is to deduct your health insurance premiums. As long as you are not eligible for a group health insurance plan, you should be able to deduct the cost for health insurance for you and your family. With the price of health insurance these days, that can turn out to be a nice deduction for you.

2. Health Savings Account

In addition to deducting your health insurance premiums, you might also want to consider starting a health savings account. With a health savings account, you can contribute pretax money to an account for health expenses. You can use the money in this account to pay for any qualified health expense directly. The amount that you contribute to your account can be deducted from your total income for the year. This gives you a good way to save for medical expenses as well as get a nice tax break.

3. Home Office Deduction

As a sole proprietor, you can also take a nice deduction for having a home office. This allows you to deduct part of the expenses that are associated with your home. For example, you can deduct part of the mortgage payment and utilities that are associated with doing business at home. In order to claim this deduction, you need to know the square footage of your office in relation to the total how square footage. This will tell you what percentage of each bill that you can deduct for your home office. Be careful with this deduction. If you try to deduct too much, the IRS will get suspicious. As a result, you might have an auditor come take a look at your house.

4. Self-Employment Tax Deduction

As a sole proprietor, you are going to have to pay the self-employment tax. This amounts to 15.3% of your total income. This tax pays for your Social Security tax as well as Medicare. Although you have to pay this tax, you can actually deduct half of what you pay on your personal income taxes. Although this will amount to a higher Social Security tax rate than you are used to, it will lower your personal income taxes substantially.

5. Business Expenses

As a sole proprietor you want to make sure that you keep track of all of your business expenses. Any expense that is related to the process of you doing business, you should be able to deduct it from your taxes. If you buy any supplies for your office or have any other legitimate expenses, keep a receipt for them and deduct them on your business taxes.

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