If you’re self-employed, you already pay both the income tax and the self-employment (SE) tax that goes towards funding Medicare and Social Security programs.
Unless you’re an accountant or a financial planner, wading through all the details, requirements, and forms that apply to the self-employed can be daunting.
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In order to reduce the self-employment taxes that you owe, here are a few general tips:
1. SE tax deduction
The IRS allows you to deduct between 50 and 57 percent of your self-employment tax payments when you are filling out your 1040 form, according to TurboTax, depending on your actual income.
2. Home office deduction
If you work from home and have space specifically designated for your office work alone, you may be eligible for this deduction for percentages of your utility bills, mortgage interest, home depreciation, maintenance, and insurance and property taxes, depending on the square footage calculation of the designated space, according to Investopedia.
You may also deduct from your internet and phone bills for your business use. Business travel expenses, subscriptions to publications, and expenses for education related to your business ventures may also be reduced.
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3. Look into “ordinary and necessary” deductions
The IRS allows for “ordinary and necessary” deductions if business expenses are deemed to fit this standard, according to Tax Help.
These expenses must have gone towards your trade or your business to be accepted.
4. Look into IRAs (Individual Retirement Accounts)
Simplified Employee Pension (SEP) IRAs, SIMPLE IRAs, and one-participant 401(k) plans help to lower your adjusted gross income upon which your taxes are based, reports The Huffington Post
Looking into these various retirement plans and their respective advantages and disadvantages will help you to decide which option is right for you and your retirement savings.
5. Consider hiring a professional accountant
Although this will aid you in considering all your available options and resources, never forget that the responsibility for filing accurate returns ultimately falls upon you! The IRS has additional resources and information on its website for the self-employed taxpayer.
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