Running and operating your own little self-employed business can be truly rewarding. Of course, that is until tax season rolls around. When tax season comes around, you probably start to actually envy those people with a full-time employer. With that being, said there are some amazing and innovate ways that you can reduce the amount of money that you have to pay in every year. Of course, this won’t make the record keeping any easier, but it will be less money that you have to pay in.
Don’t Get Recognized As A Hobby Operator
One major mistake that a lot of self-employed individuals make is that they get their company recognized as a hobby rather than a profit earning business. Once the IRS recognizes your company as a hobby rather than a profit earning business, you will only be able to deduct expenses that equal the amount of income that you earned. The best possible way to avoid this is by making sure that you operate and keep records just like a regular business would.
Today, all Americans must have medical insurance. If you do not, there is a good chance that you’re going to be forced to pay a substantial tax in the future. With this in mind, you should definitely get insurance. By doing so, you’ll be able to benefit in several different ways. Not only will you have a safety net, but also your health insurance premiums can be utilized for tax purposes. There is no need to put your business name on the insurance plan. Just as long as you pay an insurance premium, you’ll be able to utilize it as a tax deduction!
Deducting Family Salaries
While you’re at it, you should consider giving your children a salary. It is possible to deduct the amount of money that you’ve paid your children to work for your business. At the same time, your children will pay much less in terms of taxes. Remember that the first $5,950 earned by the child will be protected from the standard deduction. Quantities about that will be taxes at a different rate, which is normally lower than yours. Just make sure your child reports the income on his or her taxes! If you’ve been caught in something illegal, you may need to consult with a criminal defense attorney.
Giving to charity is a good way to decrease taxes. Just remember that charitable contributions will not help your self-employment taxes, unless you’re getting something in return. One way to offset this problem is by asking for advertisement in return for your donation. It could be as little as putting your name on the organization’s website. Then, your donation can be used as a business expense.
Tack Business Mileage
Most self-employed utilize their vehicle for their business. However, some do not track their mileage, which is a huge mistake. If you track your mileage, you can apply it to your income tax return to reduce the amount paid to the Internal Revenue Service. This deduction could end up saving you hundreds of dollars. Be sure to count every trip to office supply store, client meeting and post office.