Tax Advantages of Being Self-Employed

As a sole proprietor, you can have access to some tax advantages, all you have to do is arm yourself with the necessary information about tax as much as possible.

Self-employment tax deduction

This tax for self-employment is the portion for the employer with respect to social security and medicare to be paid by self-employed people. Every worker must pay taxes, as at 2015 it was 15.30% for self-employed and 7.65% for employees. Self-employment tax is seen as an expense by the IRS and is deducted from the Business income.

Other deductions for the self-employed include

Home office

Workspace cost either rented or owned can be deducted as home office expenses but you have to be prepared to defend this in the case of an audit. A good way of doing this is through the preparation of the workspace map with the right measurement. Which you have to submit for substantiating your deduction.

Phone and the internet

You can deduct your fax, internet, website maintenance and business phone expenses. You may need to deduct all this expense relating to the operation of your business.

Health insurance premium

If you are not eligible for the plan of your spouse’s employer you can deduct your own health insurance premium.

Meals

When you are entertaining a client or travelling for business, the meal taken is tax deductible. Though you are eligible only to 50% of the total cost of the meal. This will be possible if the receipt for the meal is properly kept.

Entertainment

For you to be able to claim entertainment deduction, you must have conducted business with the person or about to for the claim to be approved by IRS. You have to meticulously keep the records to scale through the audit team.

Travel

For your travel to become eligible for this advantage, the trip must be more than 1 work day trip and should be outside of your business location. The details of the business purpose will be filled to show your eligibility for the deduction

Car

Car expenses related to business is tax deductible. You have to keep an accurate record of the business trip as well as the expenses which can be accessed either through standard mileage rate or actual expenses.

Interest

Business loan interest is tax deductible. Although credit card interest is not tax deductible if it is personal: but can benefit when it is related to business.

Always seek help from a professional CPA firm in order to cut down your taxes to the minimum.

Tax Filing Basics: Do You Have to File a Tax Return?

Not all income earners will have to file a tax return. Several factors could determine if you have to file, including the source of the income, how much you earned, your age and your filing status. For some people this is quite straightforward while for others it is not. For example, tax preparation for small business is sometimes easy and sometimes its quite hectic when there are too many entries to handle.

Check Eligibility

If your gross income is higher than your age threshold and filing status, you have to file a tax return. Provided no other claims arise from someone else.

If you are a dependent on the return of another person, differences exist in the rules. Single dependent under 65 and are not blind, are eligible to file a federal tax return was more than $5950. For the single dependents and are blind, you can file a tax return if your income was more than $7,400.

The under 65 who are married and not blind must file a tax return if their earned income was over $5950. 

Criteria for Self-Employed Persons

There are other reasons to file tax returns. The most frequent reason for undertaking this action if you do not meet the criteria above is for self-employed persons. The self-employed can file a tax return if their net earnings are less than $400. Special taxes, including taxes on retirement accounts, alternative minimum tax (AMT), household employment taxes, Medicare tax are other reasons to file a tax return.

Take a Tax Break

If you have made up your mind not to file a tax, you may have to take advantage of a tax break which is available. Excess with-holdings are an example of refund you might be entitled to. 

A lot of taxpayers may have been part of one of these categories. If you consider your situation to be out of the box, you have to file so that the IRS will not write you saying you should have filed.

Federal Rules

It is also crucial to consider that these are the federal rules. Though state rules might be very different and are quite inconsistent. We have no personal exemption and thus, taxpayers are subject to tax on the first dollar. It is possible, then, that you might have to file a state (or local) income tax return even provided you are exempted from federal income tax.

Or just, Ask For Help!!

As always, if you have questions, ask for help. There are so many resources out there. Most software packages have an interview interface that can walk you through your situation – but remembers that those are only as good as your answers. For the best results, consult with a tax professional or call the taxing authorities.