7 Self-Employed Tax Secrets

Being self-employed can be a tremendous burden. It often means working long hours, putting your personal finance on the line, and more. From the perspective of taxes, being self-employed has a number of implications, too. You’re responsible for paying your own payroll taxes, for example, and that includes the portion of payroll taxes traditionally paid by an employer. This is commonly referred to as the self-employment tax.

The good news is that there are some tax rules that favor the self-employed. If you know what they are, you can reduce the amount of drain that self-employment taxes will have on your business.

Here are some secrets that every self-employed person should know about self-employment taxes:

1. Self-employment, from the tax perspective, includes any work you do that’s in addition to a regular job. For example, if you have a full-time job as an accountant for a local construction firm, but prepare taxes for friends and family at a fee during tax season, that income is taxable.

This doesn’t favor the self-employed, per se, but it’s something you have to understand in order to file your taxes correctly.

2. Estimated tax payments are a requirement if your business has shown a profit. This can get a little bit tricky, so it’s always best to talk to your tax advisor about specifics. However, many new businesses struggle that first year or two to show a profit (or much of one). If you don’t expect to actually owe any taxes after all of your deductions, you’re not required to make quarterly tax payments. This lets you hold onto your money throughout the year. Of course, if you get to the end of the year and do have a tax payment due, you’ll want to make sure you’ve got money set aside. Once you turn a profit, at that point you’ll have to make estimated quarterly tax payments.

3. There are plenty of opportunities for tax deductions in your business. For example, if you have a home office, you can deduct all of the expenses related to that office. Keep in mind here that the IRS has very specific rules about how the office is to be used; if it’s a space only devoted to business, then you can deduct all of the costs associated with the office. However, if the space is also used for other activities, you may only be allowed to deduct a portion of it.

4. You can deduct portions of your home and vehicle that are set aside for business purposes. This is one of the most beneficial aspects of having a business from a tax perspective. The actual use you get out of your home or vehicle for business purposes can be deducted from your taxes. Get familiar with the rules for these self-employment tax deductions, and you’ll be surprised to find out just how much it will save you.

5. You can even employ your children. When you pay your children to work for you, they may not have to pay taxes on their wages. Not only that, for children under 17 you don’t have to worry about paying their Social Security taxes, either. The child must do actual work for you, and the wage you pay them should be a fair market wage. Don’t try to pay your children if they’re not doing any work, of course, but if they do work for you then you’ll be able to write off their pay from your taxes as an expense.

6. Health care expenses can be deducted, too. If you’re self-employed and paying for your own health insurance, you may be able to deduct 100% of the costs of your premiums from your tax bill. Here again, there are some caveats. For example, if you’re eligible to be covered by a spouse’s plan, then you cannot deduct the cost of purchasing your own insurance; you’re instead encouraged to participate in your spouse’s coverage option.

7. You don’t have to pay quarterly taxes unless you’re going to owe money at the end of the year. This can be a bit of a tricky game, If your business is on the edge of profitability but your individual deductions are likely to leave you owing zero in tax obligations, you don’t have to send in quarterly self-employment tax payments.

Talk to your tax professional today about other self-employment tax benefits that you might not yet be aware of.

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