It’s tax time once more, and now’s the time to manage your self-employment tax deductions for the year that past and for the upcoming year.
The job of managing business deductions may be a bit more challenging than it’s for salaried staff since you have got to trace deductions and expenses associated with running your business.
Here square measure tips to manage your self-employment expenses all year and at tax time:
Know Your Deductions
Managing your self-employment tax deductions starts with knowing which deductions you qualify for taking. The business deductions you’ll take for the most part rely upon what business you have got, however you may be stunned at what number deductions you’ll take! As an example, if you have got a product-based business, you’ll take deductions associated with the assembly of your merchandise, like the value of inventory, space for storing, handling & delivery, and selling expenses.
If you have got a service-based business, your deductions may be associated with selling, travel, meals and entertainment, automotive expenses, rent or office expenses, and technology.
Some of the self-employment deductions that a lot of folks overlook are the business use of your personal phone and laptop, office in your home, and business use of your personal vehicle. You can also take an interest deduction paid on loans that were employed in your business, similarly as any varieties of education or categories you participated in, as long because the purpose was directly associated with your business.
Also, don’t miss our on the self-employment medical insurance deduction. you can deduct the total of premiums for medical insurance, dental insurance, and long care insurance. You may be surprised that you can take these deductions as associate “above the line,” which lowers your taxable income, even though you don’t itemize your tax deductions. The best part is that since you don’t have to deduct those premiums as associated itemized deduction, they aren’t subject to the specified 10% of adjusted gross income (AGI) reduction (7.5% if you’re sixty five or older) that medical expenses are usually subject to if you’re an employee.
Keep Track of Your Deductions
The easiest way is to use a checking account and credit card for all business-related expenses thus all transactions are in one place, and to often record them in an accounting system/ledger.
But if you don’t use an accounting system, or if you frequently run business expenses through your personal accounts, the task could also be tougher. Some credit cards can give you with a year-end outline that tallies up all of your expense classes. However with personal checking accounts, you got to review your monthly statements for the whole year to see precisely what represents business income and expenses.
If you can, it’s best to use a business -only checking account thus you don’t got to worry concerning co-mingling business and private income and expenses.
Retirement Plans for the Self-employed
One of the easiest ways that to extend your self-employment deductions is by using a retirement savings plan. Typically, the deductions out there for these plans are generous than they’re for salaried folks with a similar income levels.
Here are samples of the most freelance retirement plans that are available:
- Solo 401(k). This arrangement (i.e. The Plan) allows you to contribute the maximum amount of $54,000 each year in 2017 (or $60,000 if you’re fifty or older). After you establish a solo 401(k) arrangement, you’re the employee and employer for Plan. As an employee, you may contribute up to $18,000 to the Plan (or $24,000 if you’re fifty or older). However as employer, you may contribute up to twenty five percent of your business income to the Plan, which means that if you have got a business income of $100,000, you’ll contribute $18,000 to the Plan as associated worker, plus $25,000 ($100,000 X 25%) as the company, for a complete tax-deductible contribution of $43,000.
- SEP IRA. A SEP is an IRA, however one with even higher contribution limits. For 2016, you’ll contribute up to $53,000 to the SEP (scheduled to rise to $54,000 for 2017) or twenty five percent of your net business income to the SEP, which suggests $25,000 on a net business income of $100,000.
Taxes don’t have to be an enormous expense if you are self-employed. If you find out how to manage your self-employment expenses all year, you’ll simplify the process for your CPA when doing your taxes and save cash for your business in a very major way.