Sophia Young https://canvasapp.com 3m 869 #taxtips

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Self-employed individuals, including freelancers, independent contractors, and trade or small business owners, pay Medicare and Social Security taxes, otherwise known as self-employment tax.

While it’s no fun paying extra taxes, there are several advantages to being your own boss. Aside from freedom and flexibility, you get to choose your work environment, make your own schedule, and work at your own pace to earn what you want.

Also, even though having your own business increases the amount of record-keeping you must do for tax purposes, you qualify for several tax breaks that your employed friends do not. Employees, for example, may deduct certain expenses but only if they exceed 2% of their adjusted gross income. You, on the other hand, may immediately write off deductions.

Continue reading to learn about tax benefits and deductions you may claim, as well as tax-saving tips to make your burden lighter.

Estimate Your Tax Payments

In general, self-employed individuals must make quarterly estimated tax payments. Typically, these payments are made on income that is not subjected to withholding tax. Estimated tax payments apply even if you have a full- or part-time job and your employer withholds taxes from your pay. Those who fail to make the quarterly payments may be penalized for underpayment at the end of the tax year.

Organize and Automate Your Records

The IRS expects you to keep and maintain an organized record of your income and expenses. It is your responsibility to keep all receipts required to justify any deductions. Keep receipts and accurate records of business trips, system upgrades, and any other costs of running your business, such as office supplies, postage and shipping fees, and subscriptions.

Rather than stashing receipts in drawers or boxes, try automating your record-keeping. Invest in a reliable and reputable tax planning tool that can help you file your taxes and claim any applicable deductions. A tax planning software can also save you time by doing all the calculations for you while ensuring accuracy.

Deduct Health Insurance

Take advantage of medical insurance deductions. Even though most health insurance policies typically do not cover work-related injury, you can at least deduct health insurance premiums for yourself, your spouse, and any dependents as an adjustment to income. These deductions include premiums for health, dental, and qualified long-term care (LTC) insurance. The health insurance policy does not even need to be in the business name; it is deductible even under your name.

Deduct Business Insurance

You may deduct the regular costs of protecting and insuring your business. This covers premiums for any sort of business insurance, such as fire insurance, general liability insurance, trade credit insurance, and vehicle insurance for business transportation.

Deduct Business Mileage

Even though you don’t have employee leave benefits for vacation days, you at least have mileage deductions that come in handy for business trips. Standard vehicle use deductions cover both variable costs of operating a vehicle, such as gas, oil, tires, repairs, and maintenance, as well as fixed expenditures, such as insurance and registration.

Keep in mind that if you use your car for both business and personal purposes, you must split your costs by mileage and only deduct the business use of your vehicle.

Deduct Startup Costs

Generally, the IRS requires you to deduct capital expenses over time rather than all at once. However, you may deduct up to $5,000 in startup costs in the first year of your business.

Tax-deductible startup expenses include marketing and advertising, travel and inspection of potential business sites, and legal and accountant fees.

Professional expenses paid to accountants, attorneys, and other consultants are also deductible at any time, even if they are no longer part of startup costs.

Deduct Office Space

Whether you have a dedicated office space or utilize one room in your house for business purposes, you may deduct the portion of your home used entirely for business.

Along with the office space itself, you may deduct mortgage interest, property insurance, utilities, phone and internet service, home depreciation, and repair costs during the year, so long as these expenses are related to the home office.

If you rent your office space, you may deduct the rent payment, as well as any fee required to cancel a business lease. The same applies to any equipment you rent.

Set Up a Retirement Plan

Consider setting up a self-employed qualified retirement plan, such as a Traditional or Roth Individual Retirement Account (IRA), Solo 401(k), or Savings Incentive Match Plan for Employees (SIMPLE) IRA, not only for tax considerations but also to save money for your retirement.

Increase your contributions to your self-employed retirement plan. Contributions to Simplified Employee Pension (SEP) IRA, Solo 401(k), and SIMPLE IRA let you pay less in taxes now and accumulate tax-deferred investment profits later.

Final Thoughts

If you are self-employed, check and review what you’re allowed to deduct each year to lower your tax liability and make your business as profitable as possible. Apart from following these tips, it never hurts to seek advice. Make sure that your accountant is knowledgeable in self-employment tax matters and is constantly updated on any changes to tax laws or regulations.

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