As a self-employed person, you have more opportunities for tax deductions than you would as an employee. In addition, the deductions you take related to your business save you not only income tax, but Social Security and Medicare tax, as well. It pays to look for every deduction you are entitled to, and TaxAct can help.
If you buy business assets this year, you generally spread the cost of the assets over their useful lives. For example, if you buy an asset expected to last five years, you deduct part of the cost of the asset each tax year for the next six years (the first and last years are partial years for depreciation).
Most business and investment property is depreciated using the Modified Accelerated Cost Recovery System (MACRS). This method gives you higher "accelerated" deductions in the first years you own the asset, and lower deductions as the asset ages.
You can get an even faster tax benefit from purchasing assets for your business by taking a first-year deduction. You may be able to claim the Section 179 deduction to deduct up to the entire cost of certain depreciable property in the year you place the property in service. You can take this deduction on up to $1,000,000 in 2018, if you meet the qualifications.
The IRS also allows a special depreciation allowance equal to 100% of your basis in depreciable property that you acquire during the year, reduced by any Section 179 deduction you claim. This special allowance only applies to original-use, or new, assets. However, property you buy for personal use and later convert to business use meets the original-use requirement.
TaxAct helps you determine the best way to take depreciation on business assets and calculates depreciation on Form 4562, Depreciation and Amortization.
You can deduct ordinary and necessary expenses for operating your business as a self-employed person. These expenses may include supplies, utilities, advertising, contract labor, insurance, licenses and fees, subscriptions, dues, and so on.
If you have an expense you could deduct as an itemized deduction or with your business, be sure to allocate the business portion properly. You generally receive more tax benefit by taking a business deduction than an itemized deduction.
A business deduction not only reduces your adjusted gross income, possibly helping you qualify for other tax benefits, but it reduces your income subject to self-employment tax.
January 1 — Everyone
Federal Holiday (New Year's Day) Details
January 10 — Employees who work for tips
If you received $20 or more in tips during December, report them to your employer Details
January 15 — Individuals
Make a payment of your estimated tax for 2018 if you did not pay your income tax for the year through withholding (or did not pay in enough tax that way). Use Form 1040-ES Details
January 15 — Social security, Medicare, and withheld income tax
If the monthly deposit rule applies, deposit the tax for payments in December 2018
January 15 — Farmers & fishermen
Pay your estimated tax for 2018 using Form 1040-ES Details
January 21 — Everyone
Federal Holiday (Martin Luther King, Jr. Day) Details
January 31 — All Employers
Give your employees their copies of Form W2 for 2018. If an employee agreed to receive Form W2 electronically, have it posted on a website and notify the employee of the posting.
January 31 — Individuals who must make estimated tax payments
If you did not pay your last installment of estimated tax by January 15, you may choose (but are not required) to file your income tax return (Form 1040) for 2017 by January 31. Filing your return and paying any tax due by January 31 prevents any penalty for late payment of the last installment. If you cannot file and pay your tax by January 31, file and pay your tax by April 15.
January 31 — Payers of gambling winnings
If you either paid reportable gambling winnings or withheld income tax from gambling winnings, give the winners their copies of Form W2G.
January 31 — Social Security, Medicare, and withheld income tax
File Form 941 for the fourth quarter of 2018. Deposit or pay any undeposited tax under the accuracy of deposit rules. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the quarter timely, properly, and in full, you have until 02-10 to file the return.
January 31 — Certain small employers
File Form 944 to report social security and Medicare taxes and withheld income tax for 2018. Deposit or pay any undeposited tax under the accuracy of deposit rules. If your tax liability is $2,500 or more for 2018 but less than $2,500 for the fourth quarter, deposit any undeposited tax or pay it in full with a timely filed return. If you deposited the tax for the year timely, properly, and in full, you have until February 10 to file the return.
January 31 — Farm employers
File Form 943 to report social security and Medicare taxes and withheld income tax for 2018. Deposit or pay any undeposited tax under the accuracy of deposit rules. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the year timely, properly, and in full, you have until February 10 to file the return.
January 31 — Federal unemployment tax
File Form 940 for 2018. If your undeposited tax is $500 or less, you can either pay it with your return or deposit it. If it is more than $500, you must deposit it. However, if you deposited the tax for the year timely, properly, and in full, you have until February 10 to file the return.
January 31 — All businesses
Give annual information statements to recipients of certain payments you made during 2018 Details