If you are self employed, it is very challenging to pay your tax. Business owners also wonder if being self employed can reduce tax. It may not be that obvious but there ways to reduce taxes. It takes diligence in keeping track of the deductions you can take especially if you are self employed.
Being self employed has a lot of advantages especially when reducing the tax that you are paying. An item to take in consideration is your retirement savings. When saving for retirement it can help lessen your adjusted gross income that is the basis of your income tax. Every self employed being should contribute to IRA. If you are single and you don’t have an access to company sponsored 401k, your contributions to IRA are tax deductible up to $4000 to $5000 until you are 50 years old. If you are married and your gross income is below $156,000 then it is the same rule applied when you are single. Reducing the gross income is one good way to save on paying for taxes. Not only that you can also add money to your retirement fund which is very important. In an IRA account you don’t need to pay taxes you accumulate until you start to withdraw it during the time of retirement.
If this is not clear to you and you are still wondering how to reduce taxes when you are self employed then take a look at your deductions. You might not notice that you are deducting some for you business expense but they might not be needed. Self employed can afford deductions if they are reasonable. The IRS can let you deduct some business expense. An example of this is the use of cell phone. You can deduct the cost of the cellphone and also some of your monthly bill. Also the use of uniform that you are required to wear then these can also be deducted.
The following tips are some more ways to reduce or add deductions to your taxes if you are self employed. Entertaining clients can also lessen the tax that you pay because you can deduct 50 percent of what you spend. Save all your receipts when you decide to take clients to dinner since they are considered a reasonable expense in your business. If you got employees, you may try throwing them an event such as picnic is totally 100 percent deductible. These are some of the proven methods which you can try.
These tips can really help you learn to reduce taxes and being self employed has a lot of advantage. Ask help from a tax advisor because he/she can definitely give you a lot of tips in reducing taxes.