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10 Tax Facts for the Self-Employed

Are you self-employed and become envious of family and friends at tax time because of the relative ease they enjoy at tax time? It’s true that having your own business comes with tons of benefits, but it also brings with it extra burdens and responsibilities, especially at tax time. When you have to spend hours digging through boxes of business receipts and records, it’s easy to wonder if life would be better if you only had to pull your tax information from a Form W-2.

Fortunately, with the right resources on your side, it can quickly get better. Here’s a quick look at 10 tax facts for the self-employed that can help make tax season a lot easier to get through.

1. Make the most out of your deductions for medical and dental insurance premiums. Even though you’re self-employed, you still have the ability to claim a deduction for insurance premiums that you pay for your dependents, your spouse and yourself, as an income adjustment.
2. Recognize that tax return preparation is easier for certain types of companies. File using the relatively simple Schedule C, Profit or Loss From Business unless you are required to form a corporation, partnership or limited liability company that can’t be disregarded for tax purposes.
3. Automated record keeping can help you stay organized. Use software for finances that links to your bank accounts. Such programs save time, and also help prevent accidental mistakes.
4. When it comes to business deductions vs itemized deductions, note that proper classification of business deductions may reduce your adjusted gross income and, by extension, your self-employment tax.
5. You can deduct your kids’ pay. Self-employed individuals preparing their own tax returns often overlook the fact that they can deduct amounts paid to their children for working for their business, and children often pay less in taxes than adults by virtue of the fact that they may fall into a lower tax bracket. In fact, kids can make up to $5,950 without having to pay any taxes.
6. Your home office is tax deductible. The home office deduction allows you to deduct things that you otherwise wouldn’t be able to, such as a part of your rent, utilities, and home insurance.
7. It’s usually most advantageous to register as a business. Doing so increases the possibility that the Internal Revenue Service will recognize your activity as a profit making venture rather than a hobby, with the result that the expenses related to that activity are classified as deductible.  The IRS employs a multi-pronged test to differentiate between true businesses and hobbies and it’s important to know about those factors.
8. You can reclassify charitable contributions as business expenses under certain circumstances. For example, if you donate money or goods to charitable organizations in return for advertising, those donations can be listed at tax time as business expenses.
9. Consider increasing your contributions for retirement. There are still limits on contributions to an IRA, but as a self-employed person, you can open a profit sharing, SIMPLE, or SEP plan as well. A knowledgeable tax professional can guide you through the maze of options available.
10. Your mileage is tax deductible. If you travel or drive for your business, you can deduct a mileage expense. Your records need to include the miles driven, the business purpose for the drive, and the dates of travel.

Experienced New York Tax Attorneys for Self-Employed Individuals

If you are self-employed and have tax questions, a tax  attorney at Mackay, Caswell & Callahan, P.C. has the experience you need on your side. Complete our online contact form or call to speak with a tax attorney by calling 844-MCC-4TAX (622-4829). We have offices in Albany, New York City, Rochester, Syracuse, Utica and Watertown, so whether it’s a New York City tax attorney or a Albany tax attorney you need, we stand ready to help. You don’t have to navigate the tax laws alone; our New York tax attorneys are here for you.