9 Tax Tips For The Self-Employed That Make Paying Taxes Way Easier
When you’re your own boss you have to handle all the aspects of your business, especially in the beginning. One of the most unfamiliar tasks every business owner has to think of is following all the regulations AKA paying your own business income taxes.
At first, it all seems incomprehensible and overly complicated. Plus, things in business can get hectic easily and make you forget some expenses that could be deducted from your overall gross profit leading to a higher amount that you will have to pay for the taxes. However, taxes don’t have to be so hard to manage, there are certain things you can do that will make it way easier. We’re giving you 10 essential tips that will alleviate the burden of paying income taxes.
1. Estimate Your Income
Before doing anything else, take your time to estimate your income. If you don’t do it, your tax planning will basically look like throwing darts in the dark.
Doing this will help you understand how much you have to think about deductions. For instance, if this year you are not going to hit a higher tax bracket, you probably wouldn’t want to make expenditures.
On the other hand, you might expect that your income will increase next year that will get you in the higher tax bracket. In this case, you will want to take as many deductions as possible.
2. Keep Your Record-Keeping Organized
After estimating your income, you will have to make sure your records of income and expenses to stay organized.
In order to pay the minimal amount of taxes, you’ll need to deduct plenty of things which can easily be forgotten when the time to pay taxes comes along.
Stay on top of your bookkeeping or invest in an automation accounting system that will be synchronized to your bank accounts. These softwares are often more reliable and rarely make mistakes in record-keeping.
3. Deduct Business Expenses
First thing that you will want to deduct is your office space. No matter if you have a qualified home office, or have a office facility, these expenses will cut the amount of taxes you’ll have to pay by the end of the year.
However, if you’re only starting, having a home office will allow you to deduct a percentage of your home expenses as well, such as phone, Internet connections, utilities and insurance.
4. Track Your Expenses On A Daily Basis
If you are not using an automated accounting system, make sure you don’t forget to track everything that is business related. For instance, when you go on a business trip, keep the receipts for your tickets, lunch meetings or drinks with your potential clients. These will all be deductable.
Don’t forget to include office supplies, postage and shipping costs, subscriptions, and computer updates and services in your business expenses.
Take 5 to 10 minutes everyday to check whether your daily expenses can be deductable or not.
5. Deduct Child Care Costs
If you pay for day care or babysitters for your kids while you’re working, you can retrieve deductions from those expenses too.
6. Make Your Retirement Plan
Everyone should set up a good retirement plan, especially self-employed people. This is important not only because of taxes, but also because you want to be sure to have enough money for your golden years.
Set up a self-employed qualified retirement plan, and keep in mind that the annual limit of retirement contribution for self-employed individuals is 18.6 percent of net profit.
7. Employ Your Family Members
If you have the type of business that can allow you to involve your child, consider employing your kid. You can save up by doing it because Social Security or Medicare taxes don’t have to be payed for a minor employed child of the owner.
8. Use Medical Insurance Deductions To Your Advantage
You can deduct health insurance premiums for yourself, your spouse, and your dependents as an adjustment to income.
This includes premiums for long-term care insurance. The policy does not need to be in the business name – it’s deductible even if it’s in your name.
9. Keep Your Business Structure Simple
Self-employed individuals choose what type of business entity they will operate as. If you’re only starting, you probably want to run your business as a sole proprietorship or a partnership.
These options require the least amount of paperwork and are much easier to handle. However, there’s also an option of operating as an S-corporation. This will provide liability protection and more flexibility when it comes to paying taxes.
Before choosing the type of entity, make sure you understand all different business structures and their corresponding tax rules and pre-requisites.