When it comes to taxes, being self-employed has some advantages. Whether you work for yourself on a full-time basis or just do a little moonlighting on the side, the government has provided you with a variety of tax breaks:
• Build up your retirement funds. When you’re self-employed, you’re allowed to set up a retirement plan for your business. Remember, contributing to a retirement plan is one of the best tax shelters available to you during your working years.
Take a look at the SIMPLE IRA, SEP IRA, or Solo 401(k), and determine which plan works best for you.
• Employ your kids. If your business is unincorporated, hiring your child under the age of 18 might make sense. That’s because your child’s earnings are exempt from Social Security, Medicare and federal unemployment taxes. This year, your son or daughter can earn as much as $12,000 and owe no income taxes. You get to deduct the wages paid as a business expense.
• Deduct health insurance. Are you paying your own medical or dental insurance? How about long-term care insurance? As a self-employed individual, you may be able to deduct 100 percent of the cost of these premiums, subject to certain restrictions.
• Save on business-use items. Self-employed individuals can also deduct ‘mixed-use’ items directly against their business income. Use your car for business and you can deduct 54.5¢ per business mile driven. And if you meet the strict requirements, claiming the home office deduction makes a portion of your home expenses tax-deductible.
We are glad to give you tax-saving tips and hope you find them to be helpful. If you need a CPA firm to assist with tax planning strategies to minimize tax for your situation, give us a call.