Self-employed retirees often overlook tax deductions that can lower their taxable income from side work. Joy Taylor, Kiplinger's tax editor, addresses the most common questions about what retirees can write off.
The key deduction available to self-employed people involves business expenses. If you earn money from consulting, freelancing, or any side work in retirement, you can deduct ordinary and necessary costs tied to that income. Home office expenses qualify if you use a dedicated space regularly and exclusively for business. You can claim either actual expenses (rent, utilities, insurance allocated to that space) or use the simplified method of $5 per square foot, up to 300 square feet annually.
Vehicle costs apply if you use your car for business purposes. Track mileage at the IRS rate (currently 67 cents per mile for 2024) or deduct actual operating costs including gas, maintenance, and depreciation.
Health insurance premiums present another option. Self-employed retirees can deduct 100 percent of qualified health insurance premiums paid for themselves, spouses, and dependents under age 27. This deduction doesn't require itemizing. You claim it on Form 1040 directly.
Retirement contributions work differently in retirement than during your career. If your self-employment income exceeds your contributions, you can still open and fund a Solo 401(k) or SEP-IRA. A Solo 401(k) allows up to $69,000 in combined contributions for 2024 (employee and employer portions). A SEP-IRA caps contributions at 25 percent of net self-employment income, with a $69,000 maximum.
Office supplies, professional fees, equipment depreciation, and continuing education also qualify as deductible business expenses.
The critical step involves tracking everything. Keep receipts and mile