Taking on a career as a self employed worker or a small business entails various advantages and disadvantages. Beginning your own business, whether as a sideline or a full-time job, can be a great way to turn expenditures that you would incur anyway into legal tax deductible business expenditures. As an extra feature, the revenues you obtain from your enterprise or freelancing contract can assist in making you less reliant on your employer, if not entirely self sufficient, and can support early retirement if desired.
Self Employment Tax Deduction
This particular form of tax pertains to the employer part of Medicare and Social Security taxes that freelancers are required to pay off. Everyone who works should pay these taxes, in which for the year 2011 are 7.65% for employees and 13.3% for self employed people. A lot of individuals perceive this particular tax as a discouragement to entrepreneurship. However, the Internal Revenue Services have brought forth several solutions that address this issue and lower the sting. Self employed individuals or freelancers are able to deduct up to 50% of your self-employment taxes from your net revenues. Vitally, the IRS takes the self-employment tax as business expenditure and enables you to reduce it accordingly.
Home Office Tax Deductible
the home office deductible is one of the many intricate deductibles that the IRS employs. In simpler terms, any workforce that you utilize as your primary office or for your business operations, regardless of whether you own or rent it, can be deducted as a home office liability. While you are generally on the honor list, you should anticipate and prepare to defend your deductibles in the possible event of the IRS auditing you. Prepare a detailed map of your work office with the appropriate measurements and dimensions.
Health Insurance Premiums
the tax code entails a much more complex process for a lot of individuals to reduce the expenditures of their health insurance payments. Although, if you are self employed, paid for your personal health insurance plans and were not qualified to participate in a scheme through your spouses’ employer, you can deduct all of your healthcare-related expenditures and long-term care insurance payments as a self employed individual.
Internet and Phone Expenses
Regardless if you claim the home office deduction, you can take out your business phone, fax and internet expenditures. The main thing here is to only take out the costs that are in a direct relation with your business. If you only use and own a single phone, you should not reduce its basic monthly costs since you would have likely incurred it regardless if you worked from home or not. However, if you do have a second phone that is intended exclusively for business use, you can reduce the cost entirely.
Interest on Business Loans and Business Credit Card Interest
it is a no-brainer that interests on a regular business loan from a banking institution is a tax deduced business cost. Although, regularly, credit card interest isn’t tax deductible However, if you make business acquisitions with the use of your business credit card and achieve interest, this interest is considered tax deductible. This pointed out, it is always more inexpensive to spend only the cash you already have and not be charged with any interest fees.
Overall, working as a self employed individual can definitely be satisfying and lucrative. Aside from these tax benefits that is open to such profession, self employed individuals or freelancers are also open to other benefits, particularly if your business happens to be in the field that you are most passionate and committed on working at.