Jumping into the world of entrepreneurship or freelancing has its share of tax experiences. Whether you started your online boutique, or freelancing your point-blank writing skills, or started to drive for a ride-sharing company, there are tax implications that you must be aware of, and the best part is that some could also trim down your tax bill.
In this blog, we are going to talk about the tax liabilities and benefits that all self-employed and freelancers must know about to timely pay taxes and reduce their tax bills. Let’s have a look.
Using your home for work has its share of benefits, which can help you maximize your tax savings by writing off taxes. You can avail the home office deduction if you regularly and exclusively use your home for official work purposes and claim the deduction for the part of the home used for such work.
Some of such home office deductions include a portion of home expenses like real-estate taxes, mortgage interest, home rent, utilities, and insurance – all directly in proportion to the square footage of your home space. The best part is, you can also deduct the entire cost of repairs and painting needed for this office area.
If your kids are out on a holiday or vacation, you can hire them and make some tax savings. If you are a sole proprietor and you hire your kids to clean your office, make data entries, take some calls, or do any other work, then you can deduct the wages paid to them on Schedule C – as long as the compensation is justified to the quantum of work.
Wages paid to kids are exempted from Social Security and Medicare taxes if they are under 18. They are also not subject to unemployment tax if they are under 21 years of age. It will be most likely that your children will not be liable to pay federal income taxes, which would automatically lower your family’s collective tax bill considerably.
Investing in retirement planning has two pros. One, that it secures your future and two, that it lowers your taxable income. The most common of such retirement plans is the Simplified Employee Pension Plan (SEP).
The plan allows you to put in the lesser of 25% of your net income from self-employment or $56,000 for 2019 ($57,000 for 2020) up till the upcoming tax deadline of April 15, 2020. You can also use the extended tax deadline to invest in SEP and reduce your taxable income.
Mileage is Money
While if you work the every-day 9 to 5 job, you cannot deduct the fuel expenses you make to reach office and vice versa. But, you certainly can deduct the fuel expenses if you are self-employed and drive for a client meeting or go to work from one location to another.
You are eligible to deduct 58% per mile for 2019 and also the cost of parking and any tolls you pay. Therefore, you shall ensure to track all such bills and collate them in one place to get lucrative tax deductions.
If you are self-employed or a freelancer and you travel to another part of the U.S. for such work, then you can deduct 100% of your travel costs. Additionally, you can also deduct 50% of the expenses you make on booking some hotel, lodging, or spend on food during the official trip.
We understand that managing work and your personal life can be tiresome, but these quick tax tips can help you get lucrative tax deductions and ease your tax bill. The crux is that you shall be able to quantify and provide bills for the expenses done for office work, and you are good to save some of those hard-earned dollars. To understand more about the tax implication of the gig economy or being self-employed, you can contact your MyTaxFiler expert and make smart tax decisions to reduce your tax liabilities.