Tax strategies: 10 top tax tips for freelancers

Self-employment offers a multitude of tax benefits. Opportunities to maximize your income while increasing your income may actually mean that you are paying more taxes, but at a lower percentage of your income. As Americans, it is our duty to pay our fair share of taxes to support our government; however, the IRS and the legislature have provided many opportunities to maximize personal benefits and minimize personal tax debt.

The following tips are commonly known, although many do not use them well.

1. Keep good records. While a good accountant can be beneficial to your business and the services of a quality accounting service are fully deductible, this is not usually a financial option for smaller businesses. However, keeping a good record is always an option. Most computer programs have minor accounting programs that will handle basic record keeping for a small business.

2. Office space is deductible. Maintaining an office in your home or on your business site, both require space and there are allowances for a home office. Specifically, the square footage that is the dedicated office space for your business, each and every equipment purchased to operate your home office, and improvements made for the purpose of efficiency.

3. Business expenses are important. In addition to keeping good records, it is extremely important that you keep records of all business expenses. A business cost expense journal is a great way to manage your petty cash. A checking account to pay for all major costs is imperative. If credit cards are used, you must keep detailed expense records in order to deduct interest on the cards. (Mentioning them in your journal is a great way to keep track of them.)

4. Child care is deductible. Even when your business is home-based, child care is a deductible personal expense. Help from home is often overlooked as a deduction, when in reality it is usually a necessary expense, and the reality is that you are generating income for someone else. Lawn care and home help are business related expenses.

5. Establish a retirement plan. A retirement plan doesn’t just benefit you later in life. It is a method of reducing your current tax liability and often reducing the taxable payment of a specified amount of money at any one time. Your taxable income upon retirement is most likely one level lower than your earned income.

6. Employing family members legitimately. If you have family members who can do various aspects of your business, it makes sense to employ them and offer them benefits related to healthcare and retirement / college financing. (Although these benefits must be paid by all employees, your tax savings can benefit this payment.)

7. Defer billing / income. If you work in cash and find that paying for a specific job will lead you to a higher tax bracket for a specific year, it is acceptable to defer the billing / income to the next year, lowering your tax bracket. This method is not recommended for many uses, but if your income for the next year will increase it to a higher level in the next group, this method may be recommended.

8. Use cost analysis and investment savings. By using depreciation wisely, your costs in a given year and your investment savings on equipment purchases can be beneficial to your tax plan.

9. Investment purchases at the end of the year. A continuation of depreciation benefits, year-end purchases of the equipment needed for your purchases can increase the value of your business while lowering your tax liability. Planning new purchases when the year has been especially profitable makes sense for a number of reasons. Your business will be more profitable with newer equipment, which will translate into higher revenue.

10. Get the right help. Often times, a small business refuses quality advice due to cost, not realizing that those costs are deductible and pay off in the long run. A quality accountant or tax advisor who knows the law well enough to advise you on proper purchases, investments, and deductions can save your business money by providing excellent advice.

Valuable tax advice can improve the longevity and financial structure of your business. Skimping on quality tax advice is like skimping on security issues. In the end, it may cost you more.

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