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3 Things You Need to Know
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Above & Below the Line Tax Deductions for the Self-Employed

If you are a self-employed business owner you are entitled to the choice of taking a standard deduction that regular W-2 employees receive or the choice of itemizing your tax return.

Itemizing a tax return may or may not be the way to go for some that are self-employed taxpayers, as it isn’t a guarantee that this route will yield the lower taxes of the two options. Not to mention it’s a lot more work to prepare an itemized return.

1040 u.s. individual income tax return form and fountain penBoth of these options are known as ‘below-the-line’ deductions because the amounts are listed below and subtracted from the ‘adjusted gross income’.

Above-the-line deductions are subtracted from ‘gross income’, which is entered on the top line of the 2nd page of a tax return. These deductions lower the gross income that is to be taxed, and the resulting number is known as the ‘adjusted gross income’.

There are limitations to amounts in below-the-line deductions, and therefore above-the-line deductions are more advantageous deductions to taxpayers. Above-the-line deductions are available for all taxpayers.  Self-employed business owners should include all applicable above-the-line deductions in their tax returns, regardless of whether they opt for the standard or itemized below-the-line deduction.

All business expenses are above-the-line deductions that can adjust gross income to a point that the self-employed taxpayer is entitled to additional below-the-line benefits.

Just about any expense incurred by a sole proprietorship or self-employed taxpayer qualifies as deductible. These expenses can include rent, utilities, office supplies and equipment, insurance, and legal fees.

While any self-employed taxpayer can fill out the Schedule C to take advantage of all above-the-line deductions on their own, simple mistakes draw red flags from the IRS. It’s advised that self-employed taxpayers seek the assistance of a CPA with above-the-line deductions as well as itemized below-the-line deductions.

If you require the assistance of an accountant, give us a call. We have a network of accountants that would be happy to ensure that your taxes are prepared and filed accurately.


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