Thanks to the new technology and the ease that the Internet and teleconferencing brings, this has brought about more and more people from all walks of life like coaches, contractors, professional consultants, and freelance workers to become self employed. As of late, being self employed does not mean a way of generating additional income to add to the current job, but as a primary income generator. Of these, there are many a full-time workers who are now making extraordinary incomes while setting their own hours of work. Nevertheless, self-employed people have very definite tax concerns. Peruse these 10 helpful tax tips to minimize the tax impact on your income.
1. Maintain detailed records: This is one of the most important tax tips because, without the big company resources to hire someone to track income and expense records, it is your responsibility to maintain thorough records and keep each receipt to support all of your tax deductions.
2. Deduct your professional space: If you use a separate office space or designate a portion of a spare room in your home or your basement, you are allowed to deduct the percentage of the part of your home you use exclusively for professional purposes. Claim a tax deduction for this percentage from your rent or mortgage payments, utilities, etc. If you keep a cell phone or land line exclusively for business purposes, deduct the amount from any bills.
3. Don’t overlook any business expenses: Keep records and receipts for all professional travel, office supplies, postal and shipping costs, software purchases, bills for computer maintenance or upgrades, dues for professional memberships, magazine or newspaper subscriptions, and any other business expenses.
4. Subtract day care costs: The IRS allows deductions for all types of childcare that may be provided during your business hours. These kinds of tax tips are often overlooked but they can save you a lot of money, so be sure to take advantage of the allowed deductions.
5. Create a retirement plan: Consider creating a self-employed retirement plan (that is, a SEP IRA) for tax purposes, as well as for the sake of building money to fund your retirement. You can start with as little as $100, but should you have $2,000 or more, consider a Keogh plan option, which will allow you to keep more money for your retirement in savings that are tax-deferred.
6. Hire members of your family: If this is done legitimately, you may subtract medical expenses for the whole family.
7. If needed, defer income: As your own boss, you are allowed to slightly alter your billing so that you can defer income should you find you are in an elevated tax bracket.
8. Get your FICA refunded: The self-employed in effect are making both the employers and employees contribution to the FICA taxes every time they write their own payroll check. The tax code recognizes this so you are permitted to deduct 50% of the payments on the 1040 form.
9. If it is helpful, increase expenses. If you wish to augment some of your tax deductions before 31st December, you may make more business purchases at the end of the year. It will help you to defer your income if you have a high income that may push you to the next year tax bracket.
10. Locate the appropriate assistance. Ask someone who has extensive knowledge regarding self-employment issues for tax assistance since your needs are much different than that of a business organization.
