There are tax advantages to working for yourself. Full-time or part-time, if you are self-employed, you can take advantage of a variety of tax breaks. Here are some of those benefits available to entrepreneurs:
Retirement savings. When you're self-employed, you're allowed to set up a retirement plan for your business. Remember, contributing to a retirement plan is one of the best tax shelters available to you during your working years. Take a look at the SIMPLE IRA, SEP IRA, or Solo 401(k), and determine which plan works best for you.
Family employees. If your business is unincorporated, employing your child under the age of 18 might make sense. That's because your child's earnings are exempt from social security, Medicare, and federal unemployment taxes. This year, your son or daughter can earn as much as $6,200 and owe no income taxes. You get to deduct the wages paid as a business expense.
Health insurance deduction. Are you paying your own medical or dental insurance? How about long-term care insurance? As a self-employed individual, you may be able to deduct 100% of the cost of these premiums as an "above the line" deduction, subject to certain restrictions.
Business-use deductions. Self-employed individuals can also deduct "mixed-use" items directly against their business income. Use your car for business, and you can deduct 56¢ per business mile driven. The business-use portion of your computer purchases, Internet access, and wireless phone bills is also allowable. And if you meet the strict requirements, claiming the home office deduction makes a portion of your home expenses tax-deductible.
Contact Washington DC tax preparation firm, Myrick CPA, to schedule a year-end tax review. for entrepreneurs and small business owners. Please give us a call to find out more about the tax savings available to self-employed individuals.