Tax Tips for the Self-Employed

Taxes can be complicated enough when you work for another person or company, but they you enter a whole new ballpark when you’re self-employed — leaving people with a lot of questions. If you’re wondering what differences apply to you as a self-employed person around tax season, these are a few tips that may help.

When it comes to special taxes:

You need to include Schedule SE and pay a self-employment tax rate which is 15.3%.

This accounts for 12.4% for social security and 2.9% for Medicare.

When it comes to the amount of income taxed:

All the profits of your business are subject to Medicare tax. However, only the first $127,200 of your earned income is subject to Social Security. This applies to the combination of your income as an employee and your business’ profits, so once it reaches the maximum amount, you’ll only pay the Medicare portion of those taxes.

When it comes to deducting expenses:

If you have an expense from your business, you can deduct it. This includes office supplies, costs of goods sold, advertising, licenses, equipment, insurance, utilities, etc. You can also deduct the cost of business travel as well as 50% of business meals.

When it comes to your home office:

As long as there is a designated place in your home that is used solely to conduct business and managerial activities, you can claim a home office for deductions related to rent/mortgage expenses, phone use, cleaning, etc.

When it comes to incorporating your business:

If your small business is unincorporated, like many are, you’ll have to use other incomes to

make up for any money lost in your business. To avoid this, you can set your business up as an LLC (limited liability company) or S-Corporation. Once it grows in revenue, size, and success, you can change it to a C-Corporation and take advantage of corporate tax rates and employee benefit plans.

The best way to navigate self-employed taxes is to speak to a tax expert. American Investment Planners, LLC offers professional tax preparation services to individuals and businesses across the country. Let us make your tax season less taxing! To schedule an appointment with one of our tax professionals, please call (516) 932-5130, or email info@americaninvestmentplanners.com.