The ease of communication permitted by modern technology including the Internet, teleconferencing, and mobile communication has led many professionals to begin working for themselves. Among these empowered self-employed professions are an increasing number of coaches, consultants, contractors, and traditionally agent managed freelance occupations. What may have been independently solicited work to supplement a main income, has now become the main full-time job for many. While this allows workers to set their own hours and be their own boss, it also means the self-employed must address their own unique tax requirements. Below you can find 10 ways to maximize the money you keep and reduce your taxes.
1. Keep detailed records of every transaction Large companies will employ full-time accountants to keep track of income and expense records, but as an individual taxpayer it is your responsibility to keep your records in order. Keeping a receipt on file in support of every single tax deduction you claim should be one of your highest priorities.
2. Space used for business can be counted as a deduction If there is some part of your home that you only use for business purposes, for example, a basement office or an extra room being used as an office, you my deduct this percentage of the total space. You may claim this deduction as a percent of your bills such as rent or utility payments. You may also deduct business expenses from a phone bill, if you are using the phone for business calls.
3. Don’t overlook business expenses Office supplies, shipping fees and postage, newspaper and magazine subscription costs, professional membership dues, and other business related items including computer upgrades and software should be thoroughly maintained. Any expenses accrued while traveling for business would also be included. Be sure to keep all receipts.
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 plan for your retirement A self-employed retirement plan, or SEP IRA, should be considered not only for tax reasons, but to build a retirement fund as well. A Keogh plan option allows more tax-deferred money, but is only available if you have at least $2,000 to start. Other plans are available using as little as $100 to start.
6. Hire within the family If a family member is an official employee, medical expenses for the entire family can be subtracted.
7. If you must, defer earnings When you are self-employed, you are permitted to slightly change your billing so that you can postpone income if you discover you are in a higher tax bracket.
8. Do get refunds for your FICA. Since you are self-employed, you are required to pay both portions of the Social Security Tax, employer and employee. The good news is that you may deduct 50% of your payments on the 1040 form.
9. If needed, increase expenses Just like you may choose to defer your income, should you find that you have a high income that pushes you to the next tax bracket, you may conduct more business purchases at the end of the year to augment some of your tax deductions before the 31st of December.
10. Get the correct help Seek tax help from a person who is very well-versed on self- employment issues because your needs differ from a company’s needs.