Helpful Tax Advice for the Self-Employed Articles | Taxes

By: Ron Finkelstein

Innovative technology and the convenience that the Internet and teleconferencing brings have led more coaches, contractors, professional consultants, and freelance workers to go into business for themselves. Being self employed isn't a means of simply generating additional income to supplement a job - it has become a full-time endeavor. A lot of full-time workers are setting their own hours while making great incomes. However, self-employed people do have distinct tax concerns. Read on for 10 helpful tax tips to reduce the bite Uncle Sam takes out of your income:

1. Maintain detailed records: This is one of the most important tax tips because, without the big company resources to hire someone to track income and expense records, it is your responsibility to maintain thorough records and keep each receipt to support all of your tax deductions.

2. Professional space deduction: A separate space or portion of a room used exclusively for a home office is an allowable deduction. You must figure out the percentage of space used out of the total home space and apply that same percentage to rent or mortgage payment, utilities and other expenses incurred in keeping your home. Other expenses such as a cell phone or land line used exclusively for business purposes are also allowed.

3. Don't ignore the cost of doing business. Valid expenses include professional travel, office supplies, shipping fees, professional memberships, subscriptions, and computing equipment. Take care to maintain accurate records of these costs including relevant receipts.

4. Deduct expenses for child care: Don't forget to take deductions for childcare services provided while you work. It is easy to neglect these deductions, but they can add up to a lot of money.

5. Create a retirement plan: Consider creating a self-employed retirement plan (that is, a SEP IRA) for tax purposes, as well as for the sake of building money to fund your retirement. You can start with as little as $100, but should you have $2,000 or more, consider a Keogh plan option, which will allow you to keep more money for your retirement in savings that are tax-deferred.

6. If you legally employ relatives, you can deduct medical expenses for the entire family.

7. Defer income, if you need to: You are your own boss, so if you find yourself in an elevated tax bracket, billing can be slightly altered in order to defer income.

8. Receive a refund from your FICA: You employ yourself, so you are required to submit payment for both the employee and the employer portions of Social Security taxes. You are permitted, however, to deduct one half of these payments when you file a 1040 form.

9. If needed, increase expenses: Just like you may choose to defer your income, should you find that you have a high income that pushes you to the next tax bracket, you may conduct more business purchases at the end of the year to augment some of your tax deductions before the 31st of December.

10. Locate the appropriate assistance. Ask someone who has extensive knowledge regarding self-employment issues for tax assistance since your needs are much different than that of a business organization.

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