Technology and the ease of telecommunication have prompted more consultants, coaches, contractors and freelancers to take business matters into their own hands. Self-employment is no longer a means of making some extra money but a full-time career, and many such full-timers are punching their own time clocks and making excellent incomes.
The self-employed have unique tax concerns. Below are ten helpful tax tips to help lessen Uncle Sam's tax bite:
The self-employed have unique tax concerns. Below are ten helpful tax tips to help lessen Uncle Sam's tax bite:
- Keep very good records: Unlike a large company in which someone is hired to maintain records of all income and expenses, it is up to you to keep very good records, save all receipts and be able to support your deductions.
- Office space: Whether you have a separate office facility or are using a portion of your basement or a converted den, you can deduct the percentage of your home used exclusively for business purposes. Take this percentage off of your mortgage or rent payments as well as your utilities. If you have a phone exclusively used for business, deduct those phone bills.
- Don’t forget business expenses: Keep receipts and good records of business travel and other expenses including office supplies, postage and shipping costs, dues, subscriptions, and anything else business-related, including computer software for your business and upgrades to your system.
- Deduct child care costs: There are allowable deductions for daycare, nanny care, babysitting and any other type of childcare provided while you are working. Take the deductions allowable.
- Set up a retirement plan: You should consider setting up a self employed qualified retirement plan (i.e. SEP IRA) not only for tax purposes but for the same of saving money for your retirement years. If you wish to start with more than $2,000, you can opt for a Keogh plan, which allows you to put away more into tax-deferred savings for your retirement.
- Employ family members: You can deduct medical expenses for your entire family by employing them legitimately.
- Defer income if necessary: Being self-employed, you can alter your billing slightly to defer income if you see yourself heading into a higher tax bracket.
- Get money back from FICA: Being self-employed, you pay both the employer and employee portions of Social Security tax. You can, however, deduct half of these payments on your 1040 form.
- Increase expenses if necessary: Just as you can elect to defer income, if you see that your income is high, you can make many more year-end business purchases to add some tax deductions before December 31st.
- Get the right help: Look for tax help from someone who is familiar with self- employment, since your needs will differ from those of a company.
2 comments:
Nice post. I'd like to be self-employed, and I've been thinking about running my own business soon. I'll have to keep this post in mind. Instead of starting one from scratch, I've also been thinking about buying a business instead of starting one from scratch, even if it isn't home-based. Any suggestions? Advice? Thanks.
@K.Z. - Have you checked out BizTrader.com yet? It's this online global marketplace where you can buy a business and even sell a business. You can also use it to find professional help like accountants, brokers, lenders, etc. It’s a good place to find a business on the Internet.
Then there are always local small business groups. They can also be a valuable (or invaluable) resource.
Good luck!
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