TAX BREAKS COME WITH SELF-EMPLOYMENT

Whether you're contemplating the leap into self-employment or have already jumped

, be aware of the available tax breaks.

Accelerated expensing. Planning to purchase new or used equipment or software for your business? You may be able to deduct up to $250,000 of the cost on your 2010 federal income tax return. The immediate expensing trims both taxable income and the amount subject to self-employment tax. The write-off also reduces your adjusted gross income, which would increase deductions that are calculated using this figure.

Home office. If you conduct business from your home, you may be entitled to a deduction for home office expenses. You may qualify to write off the business portion of your home utility bills, insurance, maintenance, and other expenses. The requirements for deductibility are very strict; get details if you think you might qualify.

Medical costs. You can write off up to 100% of premiums for health, dental, qualified long-term care, and supplemental insurance. Some limits apply, but the insurance can cover you, your spouse, and your dependents.

Family employees. Hiring family members to perform useful services for a reasonable wage can generate a business expense and reduce your self-employment tax.

Retirement savings. Retirement plan options for self-employed individuals include a SIMPLE, a SEP, a Keogh, or a 401(k). Contributions can bring down today's tax burden and provide tax-deferred savings for tomorrow. Another plus: You may qualify for a credit of up to 50% of the plan's set-up costs (with a $500 annual limit).

Other breaks. Other available tax breaks include a possible deduction for business travel costs and 50% of the self-employment taxes you pay.

TAX BREAKS COME WITH SELF-EMPLOYMENT

By: Daniel Gilliland, CPA

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