7 Tax Deductions Self-Employed Workers Shouldn’t Overlook

7 Tax Deductions Self-Employed Workers Shouldn’t Overlook

Self-employment can bring more flexibility, but often it brings more pressure as well. You are both employee and employer, which means you can set your own hours and decide which projects you feel like taking on. It also means that if you don’t have any cash flow coming in, there’s no one to blame but yourself.

As taxes can get more complicated as self-employed, you must pay them quarterly and you owe a lot more in Social Security and Medicare tax, which in traditional jobs is split between employee and employer. But there is one big plus to being a self-employed person around tax time, and that’s all the deductions you can claim to lower your bill. Here’s a look at 7 that you don’t want to miss out.

1. Home office deduction
The home office deduction is one of the most popular self-employed tax breaks and also one of the most abused. You’re allowed to deduct expenses like electricity, heating, property taxes, and even your homeowners insurance as they relate to your home office. So if, for example, your home office takes up 10% of all the square footage in your home, you could deduct 10% of all the bills listed above as business expenses.

The big catch here is that you can only deduct home office expenses if that room is solely or primarily used for business. You cannot consider your living room as your home office just because that’s where you work from. You probably use it just as much, if not more, for personal purposes so it would not qualify as a deductible expense.

2. Self-employment tax deduction
Everyone pays Social Security tax and Medicare tax, as mentioned earlier. Social Security tax is 12.4% of your income and Medicare tax is 2.9%, for a total of 15.3%. You’re only responsible for half of that when you have an employer. Your company pays the other half. But when you’re self-employed, you must pay it all on your own.

The good news is that the government enables you to write off half of what you pay in these taxes (your employer portion) so you don’t have to pay income tax on this amount. This puts self-employed workers on an equal footing with traditionally employed workers.

3. Travel expenses
Whether driving to see a client in your local area or flying across the country to attend a conference, you can deduct any travel expenses you incur on behalf of your business. This includes flights, rental cars, hotel stays, and even ride-sharing fees. If you’re driving your own vehicle, you can deduct 58 cents for every mile on your 2019 tax bill. In 2020, this drops to 57.5 cents per mile.

The government isn’t just going to take your word on these expenses, so keep documents to prove what you spent. The same goes for the home office deductions you plan to claim above: Keep receipts or else the government could disallow them if it audits you.

4. Office supplies
Simple things like paper and pens, all the way to expensive pieces of equipment you buy for your business, can be tax-deductible, as long as you use them primarily for business and you keep all receipts to prove your expenses. Go back through your bank and credit card statements for the last year and note any business-related expenses you may have forgotten about. Highlight them or record them on a separate sheet of paper so you have all the numbers you need when you’re ready to file your return.

5. Professional education
Attending conferences, taking a professional development course, or pursuing an advanced certification to improve the quality of service you offer your customers are all deductible expenses as long as they relate to the business you’re currently running and you have the documents to prove your expenses.

Courses to help you branch out into a new, unrelated business wouldn’t count, though. It’s fine to write off a course in graphic design if you’re already a graphic designer, because it can help you improve your skills and the services you offer. But if you run a bakery and just decide to take a graphic design course on a whim, you can’t count this as a business expense.

6. Advertising
Paid advertising, like ads online or a TV or radio commercial, is a deductible business expense. The same goes for maintaining a business website and any billboard space your company pays for. Keep track of how much you spend on advertising throughout the year and hold on to those receipts.

7. Health insurance premiums
Self-employed workers don’t have an employer to help them cover the cost of their health insurance, so the government enables them to write off their premiums. This only applies to health insurance that you’re paying for on your own. If you get health insurance through your spouse’s company, you cannot write this off even if you’re self-employed. But you can write off premiums for yourself, your spouse, and any dependents if you pay the full cost of the health insurance premiums yourself.

This isn’t a comprehensive list of all possible self-employed business deductions, but it should give you a sense for what you can and cannot write off. Only expenses that are primarily or solely for your business are tax-deductible and you must have documents to prove all of these deductions.

And remember this list as you move into 2020, so you can start keeping records of all tax-deductible expenses to make next year’s tax season go much smoother.

Tax scams are in full swing. Here’s how to protect yourself

Tax scams are in full swing. Here’s how to protect yourself

  • “Don’t ever give out personal information to anyone you don’t know over the phone.”
  • The IRS will never make initial contact with taxpayers via an unsolicited phone call or e-mail. (The agency generally only contacts people by mail.) It doesn’t call about unexpected refunds, ask for personal information like credit or debit card numbers over the phone or make threatening payment demands. If suspicious, taxpayers can request that the caller send a letter.
  • Beware of e-mails or other communications posing as the IRS, promising a big refund or personally threatening you. Don’t open attachments or click on links in suspicious e-mails.
  • If a tax refund promised by a tax preparer seems too good to be true, it probably is. Ask some questions: Why is the refund coming out this way? Why am I getting such a large refund?
WHY DO I NEED A TAX CONSULTANT?

WHY DO I NEED A TAX CONSULTANT?

There are several reasons why it makes sense to hire a tax consultant. Even when it might represent an additional expense on our budget, the advantages are more. Firstly, they are experts in the matter, they have to stay updated with IRS tax code changes, and they could even help you get a higher tax return.

Tax Consultants Are the Pros

Tax advisers are accounting professionals who must obtain different certifications in order to provide guidance and consultation services. They must pass different annual regulatory tests to keep their licenses, too. This means tax consultants are more familiarized with the IRS Tax code, they know how the system works, and you might benefit from such knowledge.

Just like you would hire a professional contractor for your home improvements, or a professional doctor for your medical needs, you want should want to hire a professional tax adviser to take care of your tax duties.

Tax Consultants Are Updated with IRS Tax Code

The IRS Tax Code is over 2000 pages long, without including additional explanations and resources. Every year, there are different Tax Law changes and reforms. Tax consultants must keep up to date in regards to those modifications. This is particularly important if you’ve been doing your taxes yourself. There might have been updates you were not aware of until now.

If you worry about making a mistake when filing your taxes, tax consultants will give you the peace of mind you needed.

You Might Be Able To Get A Higher Tax Return

Getting back to what we mentioned before, tax consultants know how the system works, and this can benefit you. Since most consultants also provide financial advice, they can guide you year-round so you can make smarter monetary decisions. This, in turn, can ensure that, when the time is due, you get a higher tax return.

Hiring a tax consultant can have great benefits in the long run. Whether you want it for your business or for your personal expenses, choosing the right consultant for you will definitely show results.

3 Common Tax Mistakes to Avoid

3 Common Tax Mistakes to Avoid

3 Common Mistakes To Avoid

We’ve all heard the quote by Benjamin Franklin “In this world nothing can be said to be certain, except death and taxes”. Yet despite April 15th being on the calendar every single year, and March 15th for business, millions of people find themselves on the IRS hit list for failing to comply with a few basic things.

Whether it’s the “I’m too busy right now, I’ll get to it next week” excuse, or just feeling overwhelmed with all the paperwork, it’s not uncommon for taxpayers to find themselves in hot water with the Internal Revenue Service.

31 million people are not withholding enough for taxes, according to this CNBC report, and this could lead to a lot of them owing the IRS more than what they think. In addition, here are 3 common mistakes people make that often lead to getting a nastygram from the IRS.

1) Overlooking Income or Inaccurately Reporting Income

We all want to limit our tax liabilities but manipulating your income in an attempt to hide money is not a winning strategy. This can easily land you in heaps of tax trouble, so it’s important to accurately report your income.

Tax Mistakes
Tax Avoidance vs. Tax Evasion
Tax avoidance are the legal things you do to avoid paying more taxes than necessary. Where it can get you in trouble is if you’re evading the tax authorities either by doing something, like filing a tax return after falsifying your income or deductions to get a favorable tax bill, or by not doing something you’re supposed to, such as not reporting all your income or not filing a return.

Michael Cohen, Donald Trump’s former lawyer was recently sentenced to 36 months in prison, in part for 5 counts of tax evasion. He failed to report $4 million in income from his taxi fleets in New York and Chicago, $30,000 in profit for the sale of a Birkin Handbag he arranged, $100,000 profit from selling a property, and $200,000 in consulting fees.

Now, most Americans don’t mean to evade the IRS and under-report income. If you’re like most people, you might just forget to report that side-gig you have as income, or the cash payments you received. In any case, making a list of all the ways you made money that year and gathering supporting documents, as well consulting with your tax advisor, are some ways to prevent the common mistake of inaccurately reporting income.

2) Misunderstanding Extension Rules: Filing and Paying Late

By not filing your tax return timely you’ll be hit with the IRS’s 25% failure to file penalty.

Of all the mistakes people make when it comes to taxes, this one is the most common and often the most costly. Most people think that filing for a tax extension means they also get extra time to pay without any consequences. That’s just not true.

When you file for an extension you also get hit with penalties, interest, and other fees if you don’t pay in what you owe with the extension. This alone could cost you a strikingly large amount, especially if you’ve built a habit of always filing for an extension.

3) Pushing It With Your Expenses or Unrealistic Deductions

Commingling your business and your personal expenses, exaggerating deductions or writing off things you’re not supposed to can trigger loads of red flags and can cause an IRS audit. Writing off that vacation to Hawaii? The designer clothing you say you need for work? What about your mileage to and from your main place of work? All of these are no-no’s and have strict rules if you do deduct them.
Staying compliant by getting all of your un-filed tax returns filed and having a tax professional guide you is the fastest and easiest solution to staying out of tax trouble.  Contact us for more information.

Have you ever wondered how your tax dollars are spent?

Have you ever wondered how your tax dollars are spent?

Ever wondered how your tax dollars are spent?

Most of us (US Tax payers) have no idea how much of our money is going to specific government departments, which leads us to the question: Where do my tax dollars go?

Here is a site that gathers information from public government records. Go to the site and just fill out your income and choose your state to see where your money is spent.

Here is the link: https://www.wheredomytaxesgo.co/