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5 Tax Tips for the Self-Employed

January 23rd, 2017

Did you know that the U.S. boasts some 15 million self-employed people? That’s more than 10 percent of the American workforce. And that also means that if you find yourself butting heads with financial and accounting issues stemming from your self-employed status … well, you’re far from alone!

Whether you’re an independent contractor, small business owner or otherwise self-employed, you’re up against some unique taxation challenges that traditional W-2 workers simply don’t face.

So we’re helping you stay on the right side of Uncle Sam by sharing a few tax tips for the self-employed:

Tax Tips for Self-Employed Americans

  1. Determine Your Business Structure: How you file your taxes will be largely determined by what kind of corporate business structure you take on. For instance, sole proprietors will claim business and income taxes on Schedule C of Form 1040, and will have to pay self-employment taxes. Partnerships need to report things like gains and losses, but income passes through to partners, where it is taxed on the individual level. Corporation profits are actually taxed twice – once at the corporate level, then at the shareholder level.
  2. Deduct Home and Auto Expenses: Extremely small businesses can enjoy tax write-offs for some of the most basic staples: housing and transportation. You can deduct certain expenses such as internet and phone service if you do business out of your home. Moreover, you can also deduct mileage – 54 cents per mile as of 2016 – for any miles logged during business use, or you can deduct expenses such as repairs, insurance and car payments. Regardless of which route you go there, make sure you’re keeping accurate records, be it mileage logs or service receipts.
  3. Take Advantage of Retirement Plans: Self-employment retirement plans are deductible up to a certain point. For instance, if you set up an individual 401(k), you can defer up to $18,000 pre-tax dollars, and contribute an additional 25% of net earnings up to $54,000. In a Savings Incentive Match Plan for Employees (SIMPLE) IRA, net earnings up to $12,500 can be contributed to the plan. People age 50 and older typically can contribute even more depending on the plan.
  4. Pay Estimated Taxes: While there’s no stream of commercials reminding you about taxes through most of the year, self-employed people can’t just be worried about April 15 – typically, you’ll have to pay estimated taxes throughout the year if your liability is $1,000 or more. You use IRS Form 1040-ES to both calculate the amount of your estimated tax, and to pay it, across four quarterly deadlines: April 15, June 16, September 15 and January 15.
  5. Seek Out Professional Tax Help: Going it alone when it comes to self-employed taxes – especially if you’re just starting out, or if your business is changing (perhaps by adding employees of your own) – is a recipe for trouble. Don’t wait for Uncle Sam to correct your mistakes. McManamon & Co. specializes in tax services for small businesses, so we’re well-versed in the accounting and filing needs of the self-employed.

Being self-employed doesn’t mean you need to tackle the tax man all by yourself – get our tax experts on your side by calling 440.892.8900 or contacting us online.

 

Tags:  , , , | Posted in accounting, McManamon & Co., small business, taxes