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When it comes to tax planning for self individuals, such as freelance writers, there are plenty of things that need to be taken care of. For example, the first thing that is very important for you to understand is that taxes are not withheld directly from the earnings of those who work as independent contractors or run their small businesses.
They have to pay their taxes on their own by filing their returns. So, in their cases, there is no question of claiming a tax refund. Most states in the United States of America also charge a special self-employment tax from their income. In short, as compared to a salaried individual, a self-employed professional usually have to pay a higher tax even if their monthly income is the same. The following are some very crucial tax planning tips for self-employed individuals and you can get more knowledge about tax planning tips for self-employed individuals on the finance program on Rainiertamayo.
Pay in Time
You can be charged an underpayment penalty if you do not pay your estimated taxes on time. You need to keep in mind that your quarterly payments are due on Apr 15, Jun 15, Sep 15 and Jan 15 – four times during a year. This rule, however, is especially applicable to those whose taxes exceed $1000 this year or who had tax liability the last year.
Set Up Your Office At Home
You can deduct the money spent on setting up an office at home and in its maintenance from the taxes. To claim these tax deductions, you must keep all those receipts separate that are related to your office set up and management. Having a home office has other benefits also. For example, you can also deduct the cost of repairs at your home (especially in the portions that you are using as your office) and a part of utility expenses, homeowner’s insurance and property taxes and even rent or mortgage. So, make sure you keep the records of expenses for your home and office separately.
Keeps Records Of The Expenses Incurred While You Are Using Your Car For Business Purpose
Professionals generally use the same car for personal as well as for business use. Therefore, when it comes to tax planning tips for self-employed individuals, keeping a proper record of miles driven is also very important. Depending upon the state you are a resident member of, you can deduct either 50 cents per mile driven or the total actual expense.
Deducting Contributions Made Toward Retirement Plans
By putting money into retirement plans, you can save a lot more on taxes. You will be glad to know that solo 401(k), SEP-IRA and other retirement plans allow you to make a larger amount of contribution as compared to most of the employer-sponsored retirement plans. It means self-employed professionals have a better opportunity to save money on taxes in this category. Last, but not the least, while you are working on all these tax planning tips for self-employed individuals, you must also be aware of the laws that require you to pay a special tax in addition to the income tax. They are known as self-employment taxes. The actual rates vary from one state to another, but as per the federal laws, it is 15.3% that includes 2.9% for Medicare and 12.4% for social security.
