How To Reduce Self Employment Tax
Is it time for you to learn how to reduce self employment tax? This article will help you with the key tips.
More tips on how to reduce self employment tax:
How can self employed entrepreneurs in the USA and UK conserve taxes?
The answer to this question could be daunting and hard to comprehend.
Sidenote: This article is general educational information so you can apply the basics in most countries.
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Nevertheless, I’ve made a very simple list of the Top 5 Tips On How To Reduce Self Employment Tax for sole traders and entrepreneurs below:
1) Home office expenses
If you are self employed and work from your home, you can deduct a part of your household expenses.
The part of household expenditures such as the internet, gas/heat or electricity, which could be deducted is determined by calculating their percent which the size of your own workspace at home is of the entire size of your house.
As an example, if your own home office is 15% of the entire sq footage of your house, then 15% of the household expenditures could be deducted.
To further illustrate, many online business owners work in 1 main room in their house. If you have a 3 bedroom house + living room, then you can average it at claiming back 25%.
Bear in mind, that the time spent on work also comes into the equation.
This is where a tax professional can check your figures for you.
2) More Household Deductions
The subsequent household expenditures could be deducted:
- Mortgage interest
- Maintenance and repairs
- Condo fees utilities
- Paying wages to members of the household
This strategy works for those who want to follow the correct rules to how to reduce self employment tax.
Those earning less than you’ll be in a lower tax bracket, thus allowing you to save tax.
The wages will be tax-deductible to you and tax-free for your own children.
The reason behind doing such things is to make sure there’s a bona fide connection between your self and your members of the family, as well as a reason for the salary, which can help alleviate any challenges.
3) Leasing a Car
Leasing a car save taxes for yourself can help you to reduce your business expenses.
However, make sure that you have a reliable income to cover payments and it relates to your work responsibilities.
Self employed entrepreneurs will save taxes by leasing a car for their small business by claiming back the payments.
4) More Car Deductions
The next car costs can be deducted for tax purposes:
- Repairs and maintenance
- Toll charges
- Parking license
- Registration lease charge
Remember, that depending on where you live there could be a maximum monthly lease amount that may be deducted for taxes.
Anything over and above this limit would be non-deductible.
In some cases, you can deduct your mileage cost instead.
How this works is the percent of the vehicle operating costs may be deducted based on the number of miles that you have driven in the month, quarter or year.
For instance, if you drove 12, 000KM for business purposes throughout the year and 20, 000KM in total, then 60% of your car operating costs can be deducted.
To support the mileage claims that you drove for business purposes you must keep a daily log.
Additionally, keep accurate books and accounting records.
How will accurate books and records help you actually save on taxes?
The reply is that accurate books and records make sure that all costs are captured on your company financial statements and personal tax return.
This way, nothing is missed.
The very best way to keep accurate books and records is to buy accounting software programs like Freshbooks, Xero, QuickBooks or Simply Accounting.
Recommendations: Get a free trial on FreshBooks self-employed accounting software. This makes working for yourself painless by making your accounting a breeze. Also, send out your invoices easily. Try it Free Here
In closing, I hope that you found this aritcle on how to reduce self employment tax very helpful.
Always speak to a tax professional who can help you claim back even more tax and plan your long-term wealth.
Faithful in your success!
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