The good news is that being self-employed is one of the best tax strategies around. Unlike a salaried employee, you now have the full scope of tax credits and deductions available in the tax code. The key, of course, is to understand the available deductions and organize your business in a way that allows you to maximize depreciation.
The number one tax strategy for the self-employed is to save receipts for every business expense and cancel them. Virtually everything can be deduced, so do it. Acceptable expenses include cell phone use, business mileage, office supplies, home office deductions, including a portion of your mortgage or rent, etc. If you filed a tax return while self-employed, you probably already know this, so let’s move on to more specific tax strategies for self-employed.
Maximizing non-principal losses can result in significant tax savings. If your expenses exceed your income for one year, you obviously won’t have to pay taxes for that year. However, what most people don’t realize is that these losses can be carried over for seven years and deducted from future income. Alternatively, the same losses can be carried over to three years to recover the taxes paid in the past. The end result of this situation is that you can turn a bad business year into an income generator by applying your tax losses in other years, effectively canceling your tax bill for those years.
Another tax strategy is to look into your collateral assets. If you have a business, you’ll often have a second designed to make money with a personal interest. Even if you’re there mainly because you like it, you may not realize that it qualifies as a business and can help you lower your taxes. Let’s say you’re primarily a freelance consultant, but you also write travel articles on the sidelines. You may view travel articles as a hobby, but it’s actually a business. If you’ve sold or even tried to sell any of your articles to a publication, all travel writing expenses can be deducted from your taxable income. This includes travel, etc. These deductions can significantly reduce the taxable income of the consulting business. Make sure you understand their general business commitments, even if you don’t really consider them a business.
Consider hiring your kids to save on taxes. A child under 18 who works for you doesn’t have to pay FICA and so on. If your total salary for the year is less than $ 4,250, they won’t pay taxes, and you can write off this amount as a legitimate business expense. Of course, the child has to perform a legitimate business task, but presentation and similar manual activities will certainly qualify.
Tax strategies for the self-employed are plentiful. If you are self-employed, consider seeking professional help. A good professional will save you thousands and thousands of dollars in taxes, more than offset your taxes. Oh, you can also deduct their fees!