If you're self-employed or a farmer, you get to enjoy some lifestyle benefits that many people wish they could have as well. However, that doesn't mean either of these careers is easy. Not only do you need the discipline to stay on top of what needs to get done every day, but you also have to be responsible for all of your finances. This can get quite stressful. For many people in this position, tax time is especially stressful. While the amount that you're expected to pay can come as a surprise, it's not all bad news. There are ways for self-employed individuals and farmers to reduce their tax burden. To ensure you're aware of all the options and deductions that are available, we want to highlight several notable tips:
1. Understand the Schedule SE
One of the reasons self-employed individuals and farmers often feel like they have to pay more in taxes than other people is because they are responsible for paying taxes that support Medicare and Social Security. While employers take care of these obligations for their employees, individuals who work for themselves make these payments in the form of self-employment taxes. When filing, anyone in this position needs to include a Schedule SE. The thing to remember is between fifty and fifty-seven percent of the payments made via a Schedule SE can be deducted on a 1040.
2. Consider Organizing As An S Corp
Many people start working for themselves as a sole proprietor. But as you start to earn more money, it can be useful to explore options like organizing as an S Corp. Even though this move can require more work than simply acting a sole proprietor, the available tax savings can make it well worth the effort.
3. Know Your Deductions
There are quite a few tax deductions available to self-employed individuals. Home office, the Internet, phone, health insurance, meals, entertainment, travel, car, interest and subscription deductions are all possibilities for self-employed individuals. Just keep in mind that the IRS does keep an eye out for abuses of these deductions, so if you have any questions about whether or not a deduction is legitimate in your specific case, it's always best to speak with a professional.
4. Be Aware of Net Profits
At the end of the day, self-employed individuals get taxed on their net profits. Being aware of this fact throughout the year and carefully documenting all expenses, as well as looking for opportunities to strategically plan expenses, can help you reduce the amount of taxable profit you have when the time comes to file.
If you're feeling overwhelmed by getting your taxes in order and want professional help, be sure to take a look at the Cincinnati tax services we provide.
By filing your taxes online instead of on paper, you can streamline this entire process and reduce the likelihood of making a mistake. While e-filing has definitely made it easier to deal with personal and business taxes, that doesn't mean it's foolproof. It's still possible to make mistakes when you file this way, and plenty of people still do. Not only can making an e-filing mistake cause a headache, but it can also cost you money. Since those are both things you'd probably prefer to avoid, we want to highlight the most common e-filing mistakes that get made every year:
Your Social Security Number
Even though it seems like an obvious thing, statistics show that plenty of people incorrectly enter one or more digits of their social security number. While this mistake is easy to avoid, entering the wrong number can cause a substantial delay with getting your refund. So let this be a reminder to double-check the SSN you enter before proceeding with your e-filing.
Use the Right Name
Whether you go by your middle name instead of your first name or recently got married, there are a number of factors that can result in you frequently using a different version of your name than the one that's legally recognized. Although there's nothing wrong with that, just be sure you use the most current version of your legal name when you e-file. If anything has happened that may have changed your name, you can use the SSA.gov website to check.
Double Check Your Bank Info
One of the advantages of choosing to e-file is you can get your tax refund in much less time than if you file by mail. However, that will only be the case if you enter the right routing and bank account number when you e-file. As with your SSN, double check before submitting. Making a mistake with a single digit can greatly increase how long it takes to get your refund.
Get All Your Ducks in a Row
While e-filing allows the Internal Revenue Service to process your return in much less time, it doesn't mean they're not paying close attention to the numbers you enter and deductions you claim. The last thing you want to do is make any mistake that triggers an IRS notice or audit, so be sure that you have all the necessary forms for filing your return and get that information entered correctly.
If you want to be sure that your return is filed correctly and you're able to maximize your refund, Alpha Tax Services can help. In addition to having over two decades of tax preparation experience, you can instantly get a $50 check when you file with us.