Business Tax Issues of the Self-Employed
Due to the complexity of tax law as it applies to self-employed individuals, the best tax strategy available is often to enlist the help of a qualified tax professional to handle all business tax preparation. Many self-employed taxpayers do not know how to use available tax deductions to reduce their tax liability and therefore end up with tax balances that are more than they would otherwise be required to pay. In addition, self-employed individuals have certain tax obligations which, if not met according to the strict guidelines outlined in governing tax codes, can result in unwanted consequences including interest, penalties, and enforced collection activities.
There are numerous tax deductions available to self-employed individuals that, when used properly, can significantly reduce the tax amount owed. The problem is that these deductions are often overlooked or misused by self-employed taxpayers who are not tax specialists. Some of the more common tax deductions available to the self-employed are outlined below.
- Home Costs A percentage of home costs including such things as utilities and phone service can be deducted when any portion of the business is conducted from home or when the home is used to store business inventory.
- Commuting Costs Commuting costs can be deducted if the business operates out of more than one office, requiring a commute between offices, or if travel is otherwise required to carry out the activities of the business.
- Health Insurance Costs 100% of all health insurance costs can be deducted as a business expense.
In addition to being allowed numerous tax deductions, a self-employed individual is responsible for fulfilling certain tax obligations, some of which are specific to sole proprietors, independent contractors, and individuals who are otherwise self-employed. The tax code describing these obligations is complex and can often be confusing to someone who is not a business tax expert. As a result, tax payments can be miscalculated, tax deadlines missed, and available tax deductions tied to these tax payments overlooked. A good example of this is the self-employment tax. Currently, a self-employed individual must pay a 5.3% self-employment tax on earnings up to $106,800. However, one half of the self-employment tax amount paid can then be deducted from the gross income of the business. This is an important business tax deduction and one that is often missed.
If you are a self-employed, our experienced tax professionals can help you effectively handle your business tax resolution. For more information about our full range of business tax and accounting services, visit us today at www.businesstaxpreparation.com. Contact us by phone at (866) 676-9417 or by email at firstname.lastname@example.org to receive a free, no obligation consultation.