Paying taxes might not be your favorite aspect of working as a freelancer or having your own business. It may cause a migraine to keep up with what’s owed and when it must be paid. But, the more you know about taxes, the more it’s possible to save by legally slashing your tax bill. Attempt the following 7 tips from Scott Partners Accounting to take control over your taxes.
1) Have knowledge of what business costs are deductible. The great news regarding operating a freelance business – or working as a remote worker – is that you are permitted to deduct specific costs from your taxable income that decreases all tax liability.
Tax-deductible business costs might involve travel, advertising, car mileage, supplies, office furniture, software, computers, or insurance. Even if something is partially business or partially personal, it’s possible to still appropriately divide it then deduct the business part.
2) Claim your home office tax deduction. To claim a home office deduction probably is simpler than you might think. It is a method of making specific expenses, like rent, mortgage interest, insurance and utilities, partly tax-deductible.
To be eligible, you have to use a portion of your home exclusively and regularly for business, like a detached garage, spare bedroom, or any identifiable area. The IRS additionally requires that your house is the principal area of your business.
If you are employed by an organization yet working from home, there is an extra requirement: The business usage of your house has to be a convenience for your employer, and not for you. One example might be if your organization does not have an office in your area or enough space for people to work.
3) Become diligent in regard to categorizing business costs. To gain the most tax savings you have to keep excellent records. If you never have been a stickler concerning tracking expenses, now is the time to begin.
Try money management tools out, like QuickBooks, Quicken, and Mint. They may assist you in categorizing expenses and staying organized.
4) Have the proper types of insurance for your work. Selecting the proper kinds of insurance for your home office or small business is important to protect yourself from unexpected losses. At least consider the following kinds of policies:
Property insurance. It’ll pay to replace or repair property, which includes inventory, office equipment, and computers.
General liability insurance. The insurance will pay for legal fees, damages, and court costs if your company is found at fault within a suit.
Commercial auto insurance. Such insurance will pay for liability and damages which might come up as you use an automobile for your freelance work or business.
Plus, do not forget about a health plan for your dependents and yourself. Obamacare, a.k.a. The Affordable Care Act, provides freelancers a market to purchase insurance coverage.
Depending upon your family size and income, you might be qualified for a subsidy to decrease your premiums.
The price of various kinds of insurance – which includes property, health, commercial and liability auto – generally are tax-deductible as you are self-employed.
5) Utilize a health savings account. When you enroll in a health savings account, a.k.a. HSA, it’s possible to save money on health care expenses.
Figure out if you’re eligible for an HSA irrespective of whether you work for an employer or are self-employed. Those special accounts permit you to pay for eligible medical costs on a pre-tax basis, which will cut your tax bill – yet you first have to be enrolled within a high-deductible health plan.
6) You can contribute to a retirement account for self-employed individuals. Depending upon your financial and work situation, you might be eligible for different kinds of retirement accounts. The more contributed, the more saved on taxes and the larger your retirement nest egg is going to be.
Here are 3 kinds of retirement accounts you ought to be familiar with as you work for yourself or do not have a plan for retirement at work.
IRA. An Individual Retirement Arrangement provides “traditional” tax-deductible contributions which never are taxed until you get a distribution. Or it’s possible to select a Roth version which taxes contributions, yet permits tax-free withdrawals within retirement.
Solo 401(k). It’s like a 401(k) plan provided by major companies and is obtainable as you work for yourself, without employees. It is provided as a Roth or traditional or account and is available with high annual contribution limitations.
SEP-IRA. It’s an excellent choice for someone who’s self-employed without or with employees. Contributions only can come from an employer. Workers never can contribute their own funds. Therefore, as the business owner, you select the quantity of tax-deductible contributions that you will add to the account every year.
7) Utilize a tax professional. If you require assistance in understanding how you can lower your taxes, speak to a qualified accountant.