There is a lot to be said about being self-employed: you're your own boss, you can work your own schedule, and you know that your hard work will benefit you and your business in the long run. But there are challenges to being self-employed, and one of those challenges is planning for taxes. As a self-employed person, it is highly recommended that you consult a tax professional for personalized tax services, but you should know the following about self-employment taxes:
Set Aside Money For Taxes
As a traditional employee, your employer likely withheld money from your paycheck to cover your state and federal tax obligations. When you are self-employed, you are responsible for properly accounting for the taxes that you owe, and withholding the money in a separate account.
Self-employment taxes are calculated a little differently than standard taxes, so it is well worth your time and money to consult a tax professional to ensure that you understand how much you will owe in taxes. In some cases, it may be recommended that you make quarterly estimated tax payments in order to avoid a huge tax payment when you file your taxes.
Set Up an Employer Sponsored Retirement Plan
When you are self-employed, you need to think carefully about planning for retirement. One way to start funding your retirement, while enjoying tax breaks, is to set up an employer sponsored retirement plan. Even if you are a sole proprietor, you are running a business, and having an employer sponsored retirement plan will allow you to invest pre-tax dollars in your retirement account; in addition, your tax federal tax burden may be lowered because your business is sponsoring a retirement plan.
Check Out Deductions for Health Care Costs
The expenses associated with purchasing health insurance can be quite expensive for a self-employed person, but luckily you can write-off a lot of the costs in most cases, which can result in a big tax break. This deduction applies not only to health insurance expenses for your plan, but also expenses that you incur paying for health insurance to cover your spouse and children.
You may also want to contribute money to a health savings account (HSA)- this allows you to use the money in your HSA fund to pay for qualified medical expenses. Money contributed to an HSA is tax exempt.
Explore All Possible Write Offs
The IRS tax code is very complicated, but there are a number of deductions and write offs available for the self-employed. In some cases it can be quite confusing to understand how to apply these write offs, so your best bet is to work with a tax professional to maximize your deductions. To learn more, contact a company like Tax Specialists Of Northern Colorado LLC with your questions.
Share1 December 2014
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