April 26, 2022
Whether you are a consultant, independent contractor, or career freelancer, there could be some tax-saving opportunities out there waiting for you to take advantage of. Continue below to learn the top 4 ways freelancers and self-employed business owners might save thousands of dollars on taxes each year!
Although self-employment certainly changes the tax game, requiring a whole new set of rules and conditions entirely different from individual tax planning and preparation, there are several tax benefits available if you know where to look. A licensed and certified public accountant specializing in business taxes can help you identify and divulge in these tax incentives, ensuring that your money is optimally allocated during tax time.
You have the option of hiring your wife or husband as a paid employee, which would give you a tax break on medical insurance. Sure, self-employed folks get to write off 100% of any health insurance premiums they pay, whether for themselves or another, but with this additional tax advantage works as a permitted adjustment to your income on the 1040 form. The result is a reduction of income tax. Keep in mind, this does not reduce what you owe for self-employment tax.
On the other hand, if you provide health insurance coverage for your employees, then your spouse can add you to their policy. Your health insurance costs would be deducted on your Schedule C, which in turn would reduce your self-employment income, and ultimately, your SE tax.
Just like hiring a spouse, hiring your kids as paid employees can pose certain tax benefits. Whether you give them the task of answering phones, entering data, or simply cleaning the office, you can deduct their wages on your Schedule C, thus reducing your tax liability. Children under the age of 18 do not pay Social Security tax, while dependents between 18 and 21 do not pay federal unemployment tax.
If you regularly conduct your business out of your residence, whether meeting clients or using a space that is exclusively-designated for business-related duties, you can claim deductions for it. For the business portion of your house, you may qualify to claim rent, utilities, insurance, mortgage interest, real estate taxes, painting, repairs, and even depreciation.
If you do not have a home office and instead, meet clients outside of your house or work at the Starbucks, you may want to reconsider. By designating a portion of your home for your business, you can add to the number of business expenses you write off each year.
If you want to save on taxes as a freelancer or self-employed individual, consider opening a specialized retirement plan. The top recommended retirement plan is the Simplified Employee Pension plan (SEP), which can hold up to a quarter of your self-employment net income. Your self-employment net earnings are calculated by subtracting the deduction for one-half of your self-employment tax from your net Schedule C.
Are you looking for qualified business tax planning and preparation assistance in Indiana? Contact Aspire CPAs, PC at 317-469-4500 to speak with a licensed accountant who specializes in tax planning and preparation in Indianapolis, Indiana. You may also request an appointment, online.
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