How to minimize self employment tax

how to minimize self employment tax

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Keep accurate records. This is one of the most important ways to reduce self-employment taxes. You will need all of your receipts and books in order to claim these deductions. You can deduct all business expenses, including mileage, travel, materials and supplies from your income. Be sure that you are not listing business expenses as income.

Take advantage of the self-employment deduction. You can claim 50% of your self-employment tax as a federal income tax deduction. While this does not actually reduce your self-employment taxes, it does reduce your overall tax burden.

Claim your health insurance deduction. If you purchase health insurance independently for yourself, your spouse or your dependents, you can deduct these costs on your federal income taxes. This deduction should not require that

you itemize your federal taxes, but it can help to reduce your overall federal income tax burden.

Consider incorporating instead of working as a sole proprietorship to change the way your income is reported. Creating an S-corporation enables you to pay yourself a reasonable market salary and pay out the remaining amount you earn as an unearned dividend, thereby reducing your taxable income. Work with an experienced accountant or tax professional if you choose to incorporate your business as an S-corporation.

File your estimated taxes and pay quarterly. This can help you to avoid penalties and late payment fees on your self-employment taxes. If you prefer to handle your taxes and accounting on your own, any of the tax software or online tax preparation clients can assist you in this process (see Resources).


Category: Taxes

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