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. The most important tax tip is to maintain detailed records. Not having big business resources to hire someone to track your records, it is up to you to keep receipts of deductions and to maintain thorough records.
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. Childcare Deductions: Deductions are allowed, by the IRS, for all kinds of daycare provided during business hours. Don"t overlook these important deductions as they can save you a lot of money.
5. Retirement plan creation: Develop a self-employed retirement plan (that is, a SEP IRA) not only for tax purposes, but also for the purpose of creating a corpus that would serve your retirement. One can start with as low as $100, however if one has $2000 or more, one should try the Keogh plan option, which allows one to invest his money in savings for the purposes of retirement and also get the deferred tax option.
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. Get your FICA refunded: The self-employed in effect are making both the employers and employee"?s contribution to the FICA taxes every time they write their own payroll check. The tax code recognizes this so you are permitted to deduct 50% of the payments on the 1040 form.
9. Before the end of the tax year on December 31st you may need to increase your business expenses to offset your tax deductions. Buy a few business items that you know you will need for the months to come. This is a good option if you find your income has advanced you to the next tax bracket. This is one of ways to lower your tax burden for the year.
10. Get Tax Help: Seek tax help from a person who is very well-versed on self employment issues to get the correct needs.