Can Self-Employed Take The Standard Tax Deduction?

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Taking the standard deduction is one of the simplest ways to lower your tax burden. Can the self-employed take the standard deduction? Read on to learn more about the standard deduction, who is eligible to claim it and if it’s worth it for freelancers and small business owners.

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Can the Self-Employed Take the Standard Deduction? Standard Deduction Basics

The U.S. tax code allows taxpayers to exempt a certain amount of income from taxation. This ultimately lowers an individual’s tax burden because you will not be on the hook for paying taxes on a portion of income. Taxpayers can reduce their taxable income through the standard deduction or itemized deductions.

 

The standard deduction reduces your taxable income by a fixed dollar amount. The amount depends on your filing status. In 2016, the standard deduction for single taxpayers and married taxpayers filing separately was $6,300.

In 2017, that figure has been adjusted for inflation to $6,350. This means that an eligible single taxpayer can subtract $6,350 from his taxable income in 2017, no questions asked. You can claim the standard deduction on Form 1040, Line 40. If you are blind or aged 65 or older, you may be able to qualify for a higher standard deduction.

You may want to itemize your deductions if the total of your itemized expenses exceeds the standard deduction amount. In this case, you can lower your taxable income by the total amount of all itemized expenses. These expenses can range from medical expenses to charitable contributions.

If you opt to itemize your deductions, you will need to list the itemized expenses on Schedule A of Form 1040. Add up the total of the itemized expenses and then subtract the total from your income to figure your taxable income. If the total of your itemized deductions is less than the standard deduction, the standard deduction is preferable.

In any given year, eligible taxpayers can claim either the standard deduction or itemized deductions, but not both. The advantage of the standard deduction is that it avoids the need to itemize individual deductions.

Standard Deduction Eligibility

Most taxpayers who do not claim itemized deductions are eligible to take the standard deduction. The self-employed are also eligible to claim the standard deduction. You can claim the standard deduction and still deduct business expenses on Schedule C.

You cannot take the standard deductions if:

  • Taxpayer is filing as married filing separately and your spouse itemizes deductions.
  • Taxpayer files a tax return for a span of less than 12 months because of a change in annual accounting period.
  • Taxpayer was a nonresident alien or dual-status alien during the year.
  • Taxpayer is an estate or trust, common trust fund or partnership.
    For more information on standard and itemized deduction exclusions, see IRS Topic 501.
  • Many taxpayers are eligible for both the standard deduction and itemized deductions. In this case, choose the deduction type that yields the highest tax savings.

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