No one will claim that the tax code is simple or easy to understand. This is even more true for the self employed. If you work for yourself it’s likely that you wear many hats. Switching between the IT guru, the project manager, the sales team and even the accountant can be taxing (sorry, that’s horrible) for anyone.
With that in mind, we’ve developed these 5 tax tips for the self employed. These will help you budget effectively throughout 2012 so you’re not stuck holding the bill in April of 2013.
1)Separate Business and Personal – Set up separate bank accounts for your business and for your personal banking. This will help keep your records straight, help your accountant if you hire one, and in general help prevent accounting errors.
2) Deductions are your Friend – Make sure you claim as many deductions as possible. Are you paying student loans? The interest is deductible. Are you paying health insurance premiums? Those are deductible as well. Keep track of your business expenses – they should all be deducted from you income before calculating owed taxes. Here’s a good list of deductions that might apply to your business.
3)Hold onto your Records – No one wants to get audited, but it does happen. How do you protect yourself? By keeping good records of your business’ income & tax documents! You should hold onto these documents for years as the IRS could question your return years after the fact. A good rule of thumb is to hold onto these documents for at least 5 years.
4) Consider a Roth IRA (for the younger crowd) – A Roth IRA (and other similar retirement devices) are a good way to sock away income for retirement without paying taxes. There are restrictions on how you can access the money (you pay a penalty for removing it early) but Roth IRAs are great investments for the self employed in their 20s or 30s.
5) Consider Deferring Income – Just bumped up into that higher income bracket? You can defer income until the next tax year in many cases. Not sure if you should defer income? Check out this handy guide.
The above tips will help you save the correct amount for your taxes and hopefully help you pay the absolute minimum to the tax man.
Note that these are broad tips for the self employed and may not apply to your specific situation, so make sure you’re following the tax code & save those records!
Additional Tax Tips for the Self Employed
Our resident tax expert at WolfBridge Financial put together the following information over the last few months that may also come in handy.
- Best Tax Software – For those of you who want to do your taxes at home.
- North Carolina Tax Incentives You May Not Know About – Helping you save additional money.
- Which North Carolina Tax Bracket am I in? – Want to know how much you’ll owe this year?
- Do I need to Hire a CPA to do my Taxes? – Well, do you?