Self-employed individuals always cringe at the amount of taxes the pay
to the IRS and state. Here are tax strategies for self-employed
individuals that reduce those tax amounts.
Tax Strategies
The good news is being self-employed is one of the best tax strategies
out there. Unlike a salaried employee, the full scope of tax credits
and deductions available in the tax code are now available to you. The
key, of course, is understanding the available deductions and
organizing your business in a manner that allows you to maximize the
write-offs.
The number one tax strategy for self-employed individuals is to keep
receipts for every business expense and write them off. Practically
anything can be deducted, so do it. Acceptable expenses include cell
phone usage, business mileage, office supplies, home office deductions
including part of mortgage or rent and so on. If you’ve filed a tax
return while self-employed, you are probably already aware of this so
lets move on to more specific tax strategies for self-employed
individuals.
Maximizing you non-capital losses can result in major tax savings. If
your expenses exceed your income for a year, you obviously will not
have to pay taxes for that year. What most people don’t realize,
however, is that such losses can be carried forward for seven years and
deducted against future income. Alternatively, the same losses can be
carried backward three years to recover past taxes paid. The end result
of this situation is you can turn a bad business year into an income
generator by applying the losses to taxes in other years which
effectively wipes out your tax bill for those years.
Another tax strategy is to look at your side businesses. If you have
one business, you’ll often have a second one that is tailored to making
some money off a personal interest. While you are in it mostly because
you like it, you may not realize it qualifies as a business and can
help you reduce your taxes. Let’s assume you are primarily a
self-employed consultant, but also write travel articles on the side.
You may view the travel articles as a hobby, but it is in fact a
business. If you’ve sold or even tried to sell any of your articles to
a publication, all of your expenses related to travel writing can be
deducted from your taxable income. This includes trips and so on.
These, deductions can significantly reduce your taxable income from the
consulting business. Make sure to get a grasp of your overall business
efforts, even if you don’t really consider them to be a business.
Consider employing your children to save on taxes. A child under 18
that works for you does not have to pay FICA and so on. If the total
wages for the year are under $4,250, they will pay no taxes and you can
write off this amount as a legitimate business expense. Of course, the
child needs to actually be doing a legitimate business task, but filing
and similar manual tasks certainly will qualify.
Tax strategies for the self-employed are plentiful. If you are
self-employed, consider getting professional help. A good professional
will save you thousands upon thousands of dollars in taxes, more than
making up for their fees. Oh, you can also deduct their fees!
