The Quick and Easy Guide to Deducting Travel Expenses From Your Self-Employment Taxes

The self-employed have unique tax responsibilities, whether in the US or abroad. They are required to pay both the employer and employee portion of their FICA taxes.

This article will cover what self-employment is and how to calculate your profit and expenses. It will also go over one of the most common taxes that gets overlooked: self-employment or Social Security and Medicare taxes. 

You will first need to calculate Social Security and Medicare taxes on your income. These taxes fall into the category of Payroll Taxes, so you’ll need to take this into account before calculating your self-employment tax. The Social Security tax is calculated differently than the Medicare tax, but they both come out to 15.3% combined.

For example, if you get paid $725 per project, then self-employment taxes will only cost you around $110.92. That’s where travel deductions come into place. You can claim these business expenses to lower your taxable income.

This article will cover the basics of self-employment as well as how to deduct travel expenses.

Deducting Travel Expenses From Self-Employment Taxes

The Low-Down On Self-employment Taxes

Self-employment is having a business on your own. So, if you’re an independent contractor or freelancer, or you run a small company, you are self-employed. You would be responsible for paying taxes in a special way called Self Employment Tax. The Internal Revenue Service (IRS) has special rules for people who are self-employed by choice.

Generally, you are considered self-employed if the business you are working for is not paying you wages. This means that if you work under a W-2 (Form attached to your pay stub) then you are an employee and not self-employed. In this case, your employer is responsible for paying half of your payroll taxes.

If they fail to do so, they could be on the hook for any taxes and penalties associated with this oversight. This can turn into a nasty surprise for your employer if you attempt to file a tax return for the year.

This is where self-employed income calculations come in. You are responsible for paying all of your own taxes, including all federal and state self-employment taxes. Every form that you fill out and every payment that you make needs to be careful attention to detail. If someone is using you as an employee, they have no obligation to pay any taxes on any of your earnings.

But if you’re self-employed, then all revenue that comes through your business should be reported on your income tax return. This includes money made at gigs, as well as money paid directly to you by clients. A lot of people can be surprised when they find out they’re self-employed and have to pay all of their own taxes.

Tracking Travel Expenses

You will want to track your travel expenses and make sure that they are under control. Here’s a list of common travel deductions you can claim. 

  • Business Meals – keep your receipts if you have to meet with clients or associates to discuss business during a meal. The cost of food can be deducted (50 percent deductible)
  • Dry Cleaning and Laundry While You Travel – If you have a business meeting and you need to get dry cleaning done to look nice, these expenses are fully deductible. Laundry costs as well.
  • Entertainment – If you have to take your client our business associate out for entertainment, these can be written off. Be warned. If the entertainment expense (like bottle service at a club) is too egregious or over the top, it could raise alarms with the IRS. 
  • Transportation Costs – Any transportation costs like taxis, Ubers or Lyfts, plane tickets, rental cars, and bus tickets can be written off. Even fuel if you have to drive to business meetings or 
  • Lodging – if you book an AirBNB or Hotel for your business travel trip, the expenses can be written off.

For the complete list, check out the IRS’s guidelines.

What About Business And Personal Travel Expenses?

When you’re self-employed, it’s tempting to blend business and pleasure on vacations. If you absolutely must visit New York why not extend your stay and spend a few more days taking in the sights (like going to see the Statue of Liberty or Empire State Tower). 

It’s fine to enjoy business travel, but make sure you only deduct the amount of your trip that is genuinely used for business. For example, if you stay in New York for four extra nights for pleasure, you won’t be able to deduct the hotel room and other expenses.

You can’t deduct your spouse’s or other companion’s travel expenditures unless they are your employees. As a result, you won’t be able to deduct the second airline ticket. However, you can still deduct the amount you would have spent on a hotel stay.

You will have a lot of receipts for things like food, gasoline, etc. These expenses need to be tracked and kept in order as well. This can be a very high-maintenance process, as it requires meticulous attention to detail.

Use A Software To Help You Track Travel Expenses

Furthermore, this software will help you calculate your receipts and expenses. It’s a great way to give yourself a quick peek at how much money you’ve made this year. This can be very helpful if you want to know how much money you will need to raise or save up in order to take care of your taxes in the future.

Time To Write Off Travel Expenses! 

If you are self-employed, then you will need to pay all of your own taxes. You’ll need to track all of your income and expenses. Be sure to keep careful records of everything that you earn, because there is a very big difference between being a freelancer and being an employee. If you have questions, then the best thing that you can do is seek out the advice of experts. They will know exactly what forms and calculations you need to fill out in order to submit a successful tax return.

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