Self Employed? Simple Steps to Reduce Your Taxes and Deductions

Taxes are never pleasant but, of course, you can’t avoid them.  If you’re self-employed, your taxes are automatically higher than they would be if you worked for someone on a W2.  This means that you have to maximize your deductions so that you don’t end up paying more at the end of the year.

Receipts

Keep all of your receipts.  When you take your taxes to your accountant, having the physical as well as digital archive of your receipts is a huge help to them.  This also helps if you’re audited.  The IRS may want a copy of a receipt if they think that the purchase wasn’t legitimate, and having it on hand will make a huge difference in the event of an audit.

Employees

You can shift your liability around by paying people who are in a lower tax bracket than you, within your own family.  This means your children, most often.  Find some way that they can do some of the work for you.  This allows you to pay them and, therefore, the tax burden is shifted off of you.

Retirement

Make sure that you have some sort of tax-deferred retirement program going.  This allows you to get a deduction on your taxes for your contributions to it.  It ends up reducing your income, so you pay less in taxes.

Mileage

Make sure you track any mileage you put on your car for business purposes.  Don’t cheat on this.  You can write off $.50 cents per mile — as of 2011 — for every mile you drive for your business.  This means anything from driving out to do repairs, if you’re running a service business, to driving down to the computer store to get supplies or repairs.  If it’s for your business, you can write it off from your taxes.

End of the Year Party

Before December 31, go a little crazy on your business.  Buy new equipment or other items so that you bring down your income and get in a more advantageous bracket for taxes.  This is a great way to bring in the New Year with new equipment and a good way to make sure that you don’t end up paying money to the IRS when you could be using it for something that actually benefits you.

Incorporation

If you have employees — 1099s or W2s — incorporate.  This reduces your personal liability and your financial liability.

Phones and Internet

If you use a phone and the Internet for your business — which everyone does — make sure you write this off on your taxes.  This is a legitimate way to make sure that you’re not paying too much.

Get an Accountant

Tax software is great if you have a W2 and a steady employer and it’s a waste of time if you work on a 1099.  Get a pro to do your taxes.  If you work on a 1099, the IRS and the state will find a way to make any $10 you made into $10,000, so you need a professional to make sure that you don’t get taken for a ride.