3 Ways To Save Money On Taxes As A Self-Employed Individual
As a self-employed individual, it can feel like a large portion of the money you make goes towards paying taxes since you have to pay both the employer and the employee side of Social Security and Medicare taxes. However, there are lots of different ways as a self-employed individual that you can reduce your taxable income and save money on your overall tax burden.
#1 Keep Track Of Your Expenses
One of the most important things you can do is keep track of your expenses. You need to make sure that you keep detailed records of all the money that you spend on your business.
If you have not already, start gathering up your receipts for the year. Business expenses include things such as the cost to maintain your office, cost of office and work supplies, and the cost of services such as having internet service or telephone service.
Once you add up all of your expenses, your expenses can be deducted from the overall amount of money that you brought in to come up with your net profit. That way, you are reporting your net profit as your income, not your gross profit.
That way, you are not being taxed on the money you spent running your business.
#2 Spend Time On Your Education
Next, make sure that you spend time improving yourself. Sign up for a class for next year that will help you gain skills that you need for your business. Make sure you pay your tuition before the end of 2017.
If you pay your tuition before the end of 2017, you can then get a Lifetime Learning Credit. You can deduct up to 20% of the money that you spend on continue your education for a maximum credit of $2,000.
If you already know that you want or need to take some educational courses next year, sign up and pay for them by the end of this year to enjoy an additional tax credit.
#3 Focus On Your Retirement
When you are self-employed, it is up to you to make sure that you are contributing to your retirement. You can contribute the same limits as other taxpayers to your 401 (k) and IRA. That means you can contribute up to $18,000 to your 401(k) before taxes and up to $5,500 to your IRA. That is up to $22,500 that you can deduct from your net profits.
As a self-employed individual, you can also set-up a SEP IRA. With a SEP IRA, you can deduct around 25% of the amount of money that you earned in 2017 into your SEP IRA, up to a limit of $54,000, whichever is the smaller number.
If you are able to, you can funnel a significant amount of your self-employment income into your future.
Set aside some time to decide what steps you need to take before the end of 2017 to save money on your self-employment taxes for the year. Remember, it can take time to set up a 401(k) or an IRA account, so give yourself time to make those things happen before the end of the year. Talk to a tax service, like Andrea Lawrence Tax Accountant Inc, for more help.