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There are a few different types of self-employment expenses that individuals will need to plan for when they are creating budgets or business plans. Some of the most common expenses include the development and maintenance of a home office; this may include utility bills, furniture, and technology purchases, among others. Advertising for the individual's business, vehicle expenses for business travel, and the purchasing of private health insurance are also costly self-employment expenses. Some of these are ongoing purchases made throughout the year, while others may only occur once or twice per year. It is important to keep careful track of all of these expenses for tax time because many qualified expenses can be deducted.
Nearly everyone who is self-employed will need to find some sort of workspace, whether they take an area out of their own homes, or rent a studio or work area somewhere else. As a result, these location costs are often one of the most significant self-employment expenses that need to be budgeted for, in addition to office supplies. Workspaces will also require utility payments, such as for electricity, heat, and water, as well as technological necessities such as phone and Internet. People who are self employed will generally need to advertise their services as well, which can incur additional costs, such as for purchasing space in magazines or newspapers, or buying business cards.
Aside from workspace related expenses, there are a number of others that also may need to be budgeted for. Using a personal vehicle for business purposes is commonly listed among self-employment expenses. This may include gas, car insurance, or a car payment if necessary. In addition, people who are self employed will often need to purchase their own health insurance, which can be very costly when compared to company sponsored plans. Most people who are self employed will need to withhold their own taxes and make estimated payments throughout the year, which will require additional planning.
Many of these self-employment expenses can be deducted, even if it is just a percentage of the entire expense. This can help to reduce the taxable income at the end of the year. For this reason, it is important to keep any and all receipts and billing statements related to business expenses, and store them in a safe place so they can be referenced at tax time. If an individual is ever audited after filing taxes, which is a bit more common with self-employed people, it will be necessary to produce these receipts detailing the self-employment expenses.
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