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.