While being a ride-share driver, freelancer or artist is a great way to earn extra income, it can also come with many tax deductions. Getting an understanding of what can help you at tax time is essential so that you do not owe Uncle Sam more than what you expected.
Home office deduction
If you have a small office at home specifically designed for your business, you may want to consider a home office deduction. This deduction allows small business owners to take a deduction for expenses associated with the business use of their home. Keep in mind; it doesn’t matter whether you are a renter or a homeowner; you still may be able to deduct the expenses.
At tax time, you have an option between the simplified method or actual expenses. The simplified method, as the name suggests, is a more straightforward way to take the deduction. Taxpayers can deduct the total square footage of the home office (not to exceed 300 square feet) and multiply by $5. This amount would provide the simplified home office deduction expense.Â
Also, taxpayers can consider actual expenditures that occurred during the year for the home office deduction. If the home office is approximately ten (10%) percent of your total home square footage, then the taxpayer can take ten (10%) percent of rents paid, mortgage interest, taxes, utilities, insurance, repairs and maintenance, and other expenses.
Health care premiums
If you are self-employed, you may be able to take a deduction for health care expenses 100% at tax time. This amount is deducted as an adjustment from your income and does not require you to itemize your deductions.
The qualified business income deduction
With the new tax law changes, taxpayers may be able to take a deduction known as QBI – qualified business income deduction. This deduction is available to those who file as a sole proprietor, partnership, or s-corporation. It allows a deduction of up to 20% of business income. There are some limitations and other rules that apply; you can find more information here Publication 535 (PDF).
Vehicle expensesÂ
You are also able to deduct mileage that you use to travel from your home and back to your home destination. The Internal Revenue Service (IRS) allows for two ways to deduct mileage on the tax return. Taxpayers can take the standard deduction method, which is merely taking the total distance and multiplying it by the standard mileage rate. For the 2019 tax year, the standard mileage rate is 58 cents per mile.
Taxpayers can also choose actual expenses. In this case, taxpayers can deduct gas, insurance, lease payments, repairs and maintenance, and more for the percentage used for business as a deduction on the tax return. Whatever method you choose, it is best to keep a mileage log to ensure you are getting the most at tax time.
Cell phone expensesÂ
Since you use your cell phone to make calls, navigate to your destination, or maybe required to utilize the internet, you may be able to deduct this expense. Keep in mind that the amount you can take is the percentage you utilize for business. For instance, if you only use 25% of your phone for your business and your annual cost is $1,000, you are entitled to a $250 deduction at tax time.
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