Self Employed? 3 Tax Tricks To Keep In Mind
As a self-employed individual, doing your taxes can be a little tricky even if you keep things simple.
#1 Keep Track of the Right Deductions
You need to keep track of all the right financial information for your deductions. As a self-employed individual, there are numerous types of items you need to keep track of so you can deduct the cost later.
Health Insurance Premiums
To start with, you can deduct your health care insurance premium. Although you now have to pay for health care out of your own pocket, you can also benefit from fully deducting this expense. Keep track of your overall healthcare spending; if it reaches a certain amount, you can deduct your other health care spending as well.
Doing your taxes can start to get complicated when you are a small business owner. If you get help from a tax professional or a legal professional, you can deduct that cost. This includes all legal assistance and tax assistance, even if you meet with a tax advisor throughout the year.
If you have to entertain clients, such as having a meeting at a coffee shop, keep track of each of those meetings and write down the purpose of the meeting. If your taxes are ever reviewed, you'll need the receipts from the meeting as well as information about the meeting's purpose.
One of the biggest deductions you will have is your home office. You can deduct the pre-determined amount or you can customize this deduction. Add up all your expenses and see what is the best choice for you.
If you drive at all with business in mind, which is likely as you work for yourself, you need to keep track of all the miles you put on your vehicle. Be sure to also write down why you were putting on those miles. You get a set amount per mile you drive to take off your taxes
Interest on Debt
If you have any debt that you are carrying for your business, any interest you pay on that debt is deductible.
There are lots of different deductions you can make as a self-employed individual. Your best bet to ensure you take advantage of all these deductions is by recording every transaction that is even remotely related to your work.
#2 Carefully Consider Your Business Structure
You need to make sure that you carefully consider your business structure. As a self-employed individual, it is often easiest to file as a sole proprietorship. However, be sure to consider other business structures as well, such as being a partnership or an S-corporation. Before you switch business structures, sit down with an accountant, and make sure you understand the requirements for each business structure as well as the tax rules and liability protection that each business structure offers you.
#3 Enjoy Generous Tax Breaks on Retirement
As a self-employed individual, you have a lot of control over what you put aside for retirement. You are both the employee and the employer, so you can make the maximum retirement contributions. If you are bringing in a significant income, make sure you are putting aside a significant amount as well. This will help lower your taxable income and will help protect your future. An accountant can help you set up a retirement account for yourself.
As a self-employed individual, your taxes may be more complicated, but there are more things you can take advantage of within the tax law. You have more deductions you can claim. You can change the structure of your business to benefit your end goals. You can save more for retirement and really build for your future. If you need assistance in the process, contact a professional tax preparation consulting agency in your area, such as Monheit Frisch CPAs PLC.