Friday, August 16, 2013

Tax Strategies: Top 10 Tax Tips for Self-Employed

Self-employment offers a multitude of tax benefits. Opportunities to maximize your income while increasing your income may actually mean you are paying more tax, but at a lower percentage of your income. As Americans it is our duty to pay our fair share of tax to support our government, however, IRS and legislature have provided many opportunities to maximize personal benefits while minimizing personal tax debt.
The following tips are commonly known, although many do not use them well.
1. Keep good records. While a good accountant may be beneficial to your business, and services of a quality accounting service are fully deductible, this is often not a financial option for smaller businesses. However, good record keeping is always an option. Most computer programs have minor accounting programs that will handle basic record keeping for a small business.
2. Office space is deductible. Maintaining an office in your home or business site, both require space and there are allowances for a home office. Specifically the square footage that is dedicated office space for your business, any and all equipment purchased to operate your home office, and improvements made for the purpose of efficiency.
3. Business expenses are important. Along with keeping good records, it's extremely important that you keep records of all business expenses. A daily diary where you log any expenses for business costs is an excellent way of managing your petty cash. A checking account to pay all larger costs is imperative. If credit cards are used, you must keep detailed expense records, in order to deduct interest on cards. (Mentioning these in your daily diary is an excellent method to keep track of them.)
4. Childcare is deductible. Even when your business is home based, childcare is a deductible personal expense. Often household help is overlooked as a deduction, when in fact it is often a necessary expense, and the reality is you are creating income for another person. Lawn care and household help are both business related expenses.
5. Set up a Retirement Plan. A retirement plan not only benefits you later in life. It is a method of reducing your current tax liability, and often reducing taxable payment on a set amount of money during any point in time. Your taxable income at retirement will most likely be a lower bracket than your working income.
6. Employ family members legitimately. If you have family members who can do various aspects of your business, it makes sense to employ them and offer benefits related to health care and retirement/college funding. (Although these benefits must be paid for all employees, your tax savings may benefit this payment.)
7. Defer billing/income. If you work on a cash basis and realize payment of a specific job is going to shoot you into a higher tax bracket for a specific year, it is acceptable to defer billing/income to the next year, decreasing your tax bracket. This method isn't recommended for many uses, but if your next year income will increase you to a higher level in the next bracket, this method may be recommended.
8. Use cost analysis and investment savings. By using depreciation wisely, your costs in any given year, and your investment savings in equipment purchases can be beneficial to your tax plan.
9. Year-end investment purchases. A continuation of the depreciation benefits, year-end purchases of necessary equipment for your purchases can increase the value of your business while decreasing your tax liability. Planning for new purchases when the year has been particularly profitable, makes sense for several reasons. Your business will be more profitable with newer equipment, resulting in increased income.
10. Get the right help. Often a small business denies themselves quality advice because of the cost, without realizing those costs are deductible, and pay off in the long run. A quality accountant, or a tax consultant who knows the law well enough to advise about purchases, investments, and appropriate deductions can save your business money, by offering excellent advice.
Valuable Tax Advice can improve the longevity and financial structure of your business. Scrimping on quality tax advice is like scrimping on safety concerns. Ultimately, it may cost you more.



Article Source: http://EzineArticles.com/126178

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