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.
Self-employed business owners have unique tax concerns. Below are ten helpful tax tips for the self-employed, to help minimize Uncle Sam’s tax bite:
1. Keep very good records -
Keep records of all your income and expenses. it’s ultimately up to you to keep very good records, save all receipts and be able to support your deductions.
2. Office space -
Whether you have a separate office for your business or are using a portion of your basement or a converted den, you are allowed to deduct a percentage of your home used exclusively for business purposes.
3. Don’t forget business expenses -
Keep receipts and good records of all your 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.
4. Deduct child care costs -
There are allowable deductions for daycare, nanny care, babysitting and any other type of childcare provided while you are working. Be sure to take the allowable deductions.
5. Set up a retirement plan -
Look at setting up a self employed qualified retirement plan (i.e. SEP IRA). This is not only for tax purposes but for saving money for your retirement years down the road. If you plan to start off with more than $2,000, consider a Keogh plan. This allows you to save more into a tax-deferred savings account for your retirement.
6. Employ family members -
You can actually deduct medical expenses for your entire family by employing them legitimately.
7. Defer income if necessary -
Being self-employed, you can alter your billing slightly to defer income if you feel like you’ll moving up to a higher tax bracket.
8. 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 own 1040 form.
9. Increase expenses if necessary -
Similar to deferring your income, make more year-end business purchases to increase tax deductions before December 31st.
10. 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. Source All Business
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