Every year, taxpayers may be able to take advantage of numerous deductions and credits on their taxes, allowing them to pay less tax—or receive a refund from the IRS. Here, We’ll see a list of items that taxpayers, including self-employed individuals and Instacart shoppers, can write off on their taxes in 2023.
What Can Self-Employed Individuals Write Off Their Taxes in 2023?
#1. Tax Deduction for Self-Employment
It’s not fun to pay extra taxes to be your own boss. But the good news is that you can deduct half of your self-employment tax from your net income when calculating your income tax, so the self-employment tax will cost you less than you think. This is because the Internal Revenue Service (IRS) considers the employer portion of the self-employment tax to be a business expense that can be deducted.
#2. Deduction for Home Office
One of the more complicated deductions is the home office deduction. In short, you can deduct the cost of any workspace that you use regularly and exclusively for your business, whether you rent or own it.
In addition to the office space itself, the business percentage of deductible mortgage interest, home depreciation, utilities, homeowners insurance, and repairs paid for during the year are all expenses you can deduct for your home office.
If your home office takes up 15% of your living space, 15% of your annual electricity bill is tax deductible. However, some of these deductions, such as mortgage interest and home depreciation, are only available to those who own their home office space rather than renting it.
#3. Deduction for Internet and Phone Bills
You can deduct the business portion of your phone and internet expenses whether or not you claim the home office deduction. The key is to only deduct expenses that are directly related to your business. You could, for example, deduct the internet-related costs of running a business website.
You should not deduct your entire monthly bill, including personal and business use, if you only have one phone line. Also, “you cannot deduct the cost of basic local telephone service (including any taxes) for the first telephone line you have in your home, even if you have an office in your home,” according to the IRS. You can, however, deduct the full cost of long-distance business calls or the cost of a second phone line dedicated solely to your business.
#4. Deduction for Health Insurance Premiums
You can deduct all of your health, dental, and qualified long-term care (LTC) insurance premiums if you are self-employed, pay for your own health insurance, and are not eligible to participate in a plan through your spouse’s employer.
You can also deduct premiums paid to provide coverage for your spouse, dependents, and children under the age of 27 at the end of the year, even if they aren’t tax dependents. Calculate the deduction using IRS Publication 535’s Self-Employed Health Insurance Deduction Worksheet.
#5. Meal Savings
When traveling for business, attending a business conference, or entertaining a client, a meal is a tax-deductible business expense, though entertainment expenses are generally not tax-deductible.
When traveling, you can deduct either 50% of the meal’s actual cost if you kept your receipts or 50% of the standard meal allowance if you kept records of the time, place, and business purpose of your travel but not your actual meal receipts. Unfortunately, this means that the desk lunch is not deductible as a business expense.
#6. Deduction for Travel
To qualify for a tax deduction, business travel must last longer than an ordinary workday, require sleep or rest, and take place outside of your tax home’s general area (usually outside the city where your business is located). Furthermore, to be considered a business trip, you must have a specific business purpose planned before leaving home, and you must engage in business activity while on the road, such as finding new customers, meeting with clients, or learning new skills directly related to your business.
Giving out business cards at your friend’s bachelor party in Las Vegas does not qualify as a tax deduction.
Maintain complete and accurate records and receipts for your business travel expenses and activities, as the IRS frequently scrutinizes this deduction. Transportation to and from your destination (such as plane fare), transportation at your destination (such as car rental, Uber fare, or subway tickets), lodging, and meals are all deductible travel expenses.
#7. Deduction for Vehicle Use
You can write trip expenses off your taxes if you’re self-employed. When you drive for business, the expenses for those trips are tax deductible. Keep detailed records of each trip’s date, mileage, and purpose, and avoid claiming personal car trips as business car trips.
You can calculate your deduction using either the IRS’s standard mileage rate or your actual expenses. In 2023, standard mileage rates will be $0.655 per mile, up from $0.625 in 2022. Using the standard mileage rate is the simplest option because it requires the least amount of record-keeping and calculation. Simply record the business miles and the dates you drive them. Then multiply your annual business mileage total by the standard mileage rate. This is your tax-deductible expense.
To use the actual expense method, you must calculate the percentage of business driving you did throughout the year, as well as the total cost of operating your car, which includes depreciation, gas, oil changes, registration fees, repairs, and car insurance. For example, if you spent $3,000 on car maintenance and drove for business 10% of the time, your deduction would be $300.
If you want to use the standard mileage rate on a car you own, you must do so during the first year the vehicle is available for business use. After that, you can use either the standard mileage rate or actual expenses in subsequent years.
#8. Deduction for Interest
Bank interest on a business loan is a tax-deductible business expense. If a loan is used for both business and personal purposes, the business portion of the interest expense is allocated based on how the loan proceeds are allocated.
If the entire loan is not used for business-related activities, you will need to track the disbursement of funds for various uses. When you incur credit card interest for personal purchases, it is not tax deductible; however, when the interest applies to business purchases, it is tax deductible.
However, it is always cheaper to spend only the money you already have and avoid incurring interest charges. A tax deduction only returns a portion of your money; therefore, if possible, avoid borrowing money.
#9. Deduction for Business Insurance
Do you pay premiums for business insurance, such as fire insurance, credit insurance, business vehicle insurance, or business liability insurance? If so, you may be able to deduct your premiums.
Some people dislike paying insurance premiums because they believe it is a waste of money if they never need to file a claim. The business insurance tax deduction can help alleviate this aversion.
#10. Rent Deduction
You can deduct the amount you pay for office space if you rent it out. You can also deduct amounts paid for rented equipment. In addition, if you have to pay a fee to cancel a business lease, that expense is deductible as well.
However, you cannot deduct rent on any property you own, no matter how small. In addition, the rent must be reasonable. A reasonableness test is usually required when you and the owner are related, but rent is valid if it is the same amount you would pay to a stranger.
#11. Deduction for Startup Costs
The IRS usually requires you to deduct major expenses as capital expenses over time rather than all at once. However, in the first year of active trade or business, you can deduct up to $5,000 in business startup costs.
Market research and travel-related expenses for starting your business, scoping out potential business locations, advertising, attorney fees, and accountant fees are all tax-deductible startup costs. If your total startup costs exceed $50,000, your $5,000 deduction is reduced. Furthermore, if you form a corporation or a limited liability company for your business, you can deduct up to $5,000 in organizational costs, such as state filing fees and legal fees.
Professional fees paid to consultants, attorneys, accountants, and others are also tax deductible at any time, even if they are not startup costs. Purchases of equipment or vehicles, for example, are not considered startup costs, but they can be depreciated or amortized as capital expenditures.
#12 Advertising Tax Credit
Do you spend money on Facebook or Google ads, billboards, TV commercials, or mailers? The costs of advertising your business are tax deductible.
You can even deduct the cost of an advertisement that encourages people to donate to charity while also putting your company’s name in front of the public in the hopes of gaining customers. A sign stating “Holiday Toy Drive Sponsored by Robert’s Hot Dogs,” for example, would be tax deductible.
#13. Deduction for Retirement Plan Contributions
The deduction for self-employed retirement plan contributions is an extremely valuable deduction you can take when starting your own business. Contributions to simplified employee pension individual retirement accounts (SEP-IRAs), savings incentive match plan for employees (SIMPLE) IRAs, and solo 401(k)s lower your tax bill now while also allowing you to accumulate tax-deferred investment gains for the future.
You could potentially contribute up to $22,500 in deferred salary for the 2023 tax year ($20,500 in 2022). You can make catch-up contributions of $7,500 ($6,500 in 2022) for a total of $30,000 ($27,000 in 2022). Also, you can contribute an additional 25% of your net self-employment earnings after deducting one-half of your self-employment tax and contributions for yourself.
The total maximum contributions to a self-employed 401(k) cannot exceed $61,000 in 2022 and $66,000 in 2023, not including catch-up contributions of $7,500 (up from $6,500 in 2022) for both employee and employer contribution categories. Contribution limits differ depending on the type of plan, and the IRS adjusts the maximums annually. Of course, you cannot contribute more than you earn, and this benefit will only benefit you if your business generates enough profits to qualify.
Can I Write Groceries Off My Taxes?
Self-employed people cannot generally write groceries off their taxes. A tax-deductible expense must serve a legitimate business purpose. Unless you’re a food vendor of some kind, groceries are unlikely to be relevant to your business.
What Items Can Instacart Shoppers Write Off Their Taxes in 2023?
One of the benefits of working for yourself is that you can deduct all of your business expenses from your income. Here, we’ll see the items you can write off your taxes as an Instacart shopper
#1. Car expenses
You use your car for business as a full-service shopper. You’re probably spending a lot of money every month just on gas and maintenance, not to mention the other costs of car ownership.
You can take mileage deductions or deduct a percentage of your actual car expenses to write off these auto expenses.
#2. Other expenses
Car expenses aren’t the only ones you can deduct. As an Instacart customer, you may be able to deduct the following purchases:
- A bike
- Your phone bill
- Accessories, such as car mounts and chargers
- A grocery cart on wheels
What Deductions Can I Claim Without Receipts?
- Self-employment taxes
- Home office expenses
- Self-employed health insurance premiums
- Self-employed retirement plan contributions
- Vehicle expenses
- Cell phone expenses
In Conclusion,
Most small business tax deductions are more complicated than this brief overview describes, but you now have a good understanding of the fundamentals.
There are many more items that you can write off on your taxes, but the ones listed in this article are the most significant. Credit card processing fees, tax preparation fees, and business property and equipment repairs and maintenance are all deductible.
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