All of us are looking for ways to reduce taxes. Each of us has different tax situations, depending upon our income bracket, whether we file singly or jointly and the type of employment we have. Self employed people face different challenges, but there are some special tax savings for the self employed.
Self employed individuals pay their social security and Medicare tax as part of their income tax. And, they bear a larger percentage of Social Security and Medicare tax, since most employers pay half of the Social Security and Medicare tax for their employees. As a result of this, many self employed people pay quarterly estimated taxes to avoid a huge end of the year tax burden.
Tax savings for the self employed come in two basic varieties. The first is reducing your adjusted gross income. For many self employed people, the best way to do this is by contributing to an IRA. If you’re single, and have no access to a company sponsored 401k, your contributions to an IRA are tax deductible up to $4000, or $5000 if you’ll be 50 years old by year end. If you’re married and your spouse is involved in a company sponsored 401k, then you can contribute up to $4000 or $5000 if you’ll be age 50 by year end, provided that your joint adjusted gross income is less than $156,000.
The second type of tax savings for the self employed come in the form of deductions. Because the self employed must pay for many expenses that are covered by the employers of traditional employees, there are special deductions and tax savings for the self employed. For example, if you use a computer to do business, you can deduct it as a business expense. If you’re required to wear uniforms that you must pay for yourself, these can be deducted. In most cases cell phone bills and mileage can also be deducted by self employed individuals. Health care expenses can be deducted, too.
Each person’s situation is different so tax savings for the self employed are different, too. Check with your tax advisor and financial planner to help ensure that you’re taking advantage of all the tax savings for the self employed that are due to you. It’s not unusual for self employed people to miss deductions and tax savings plans that could have given them great benefit. We all want to reduce the taxes we pay, so it’s wise to find out about all the tax savings for the self employed that are available to you.