Taxes are an important part of any business. Business owners must be aware of what taxes to pay and when they are due. Tax time can be daunting and quite overwhelming, but savvy business owners plan ahead so they file on time and get the right deductions. Here are some tax tips for self-employed individuals.
Tax Tips for the Self-Employed
1. Keep very good records. Unlike a large company where 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.
2. Know your 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, rent payments and your utilities. Deduct phone bills for lines used exclusively for business.
3. Don’t forget business expenses. Keep receipts and good records of business travel and other expenses. This includes office supplies, postage and shipping costs, dues, subscriptions, computer software, system upgrades, and anything else business-related.
4. Deduct child care costs. Deductions for daycare, nanny care, babysitting and any other type of childcare provided while you are working are deductible. Take the deductions allowed.
5. Set up a retirement plan. Consider setting up a self-employed, qualified retirement plan (i.e. SEP IRA). This is good for tax purposes and for saving money for your retirement years. If you will start with more than $2,000, you can opt for a Keogh plan, which allows you to put more away in tax-deferred savings for your retirement.
6. Employ family members. You can deduct medical expenses for your entire family by employing them legitimately.
7. Defer income if necessary. You can alter your billing slightly to defer income if you see yourself heading into a higher tax bracket.
8. Get money back from FICA. You pay both the employer and employee portions of Social Security tax. You can, however, deduct half of these payments on your 1040 form.
9. Increase expenses if necessary. 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.
10. Get the right help. Look for tax help from someone who is familiar with self- employment. Your needs will differ from those of a company.