Home Office

• If you use a portion of your home exclusively for business, you might be able to write off some of the real estate taxes, mortgage interest, utility bills and other expenses associated with that part of your home. The IRS takes a close look at this deduction, so it is a good idea to consult with a CPA to determine exactly what you can and cannot write off. In order to take this deduction you must use that portion of your home only for business purposes, such as meeting with clients or creating business documents. It could be hard to justify a home office that consists of a corner of your bedroom or a laptop sitting on your couch.
  
  

Health Insurance Costs

• As a self-employed individual, you are responsible for finding and purchasing a health plan for yourself and your family. You can take a tax deduction for the amount you spend on health care premiums, provided you do not have access to a group health insurance plan. For instance, if you work as a sole proprietor and your spouse works for an employer who offers group coverage, you cannot take this deduction if you would be eligible to participate in that plan.
  
  

Vehicle Usage

• If you use your home as your principal place of business, you can deduct the cost of traveling to see clients and perform other business functions. If you use your personal car for the business, you will need to keep a detailed mileage log showing the miles driven and the purpose of each trip. Having a detailed log of all the miles driven for business purposes makes it easier to compute the allowable deduction, and it makes it easier to justify those deductions to the IRS, if necessary.
  
  

Retirement Plans

• As a sole proprietor, it is important to have a retirement plan in place. When you work for yourself, you cannot rely on your employer to provide a 401k or pension plan. You can save money on your taxes and start building your retirement nest egg by opening a retirement plan designed for a small business. If you have no employees, you can open an individual 401k plan and fund it as both the employer and the employee. You can also look at a SEP IRA or a SIMPLE IRA to lower your tax bill and save for your future. Each plan has a different formula for determining contribution limits, and it is a good idea to consult with a tax professional to choose the best plan for your business.