People who work for themselves enjoy several perks and benefits. However, a nice tax break is not necessarily one of those perks. Because self-employed taxpayers have to pay their own payroll tax – the entire 15.3 percent Social Security and Medicare tax – they often get taxed heavily.
There is some relief starting this year thanks to the Tax Cut and Job Acts and a new 20% “pass-through deduction.” That means self-employed workers can now deduct 20 percent from their self-employment income before taxes. That will definitely help, but there are some other steps you can take to help you reduce your tax bill.
Start by estimating your business income. If you’re going to earn a lot and qualify for a higher tax bracket, then start looking for deductions. Taking as many deductions as possible is a good idea if you’re going to end up in a higher bracket.
It’s also a good idea to time your income. In other words, you can do your billing towards the end of the year and use it to your advantage. You can also sell assets before or after the end of the year, based on your estimated income and tax bill.
It’s also a good idea to time your expenditures. You can even purchase items on December 31 and still get the benefit of depreciation for the entire year. Lastly, make sure you count your medical insurance premiums as a deduction. This can help save you big.
These are just a few of the things you can do to help reduce your tax bill when you’re self-employed. For more valuable tips to save on taxes contact GROCO.