Top 10 Self-Employed Tax Questions and Its Answers

Top 10 Self-Employed Tax Questions and Its Answers

Top 10 Self-Employed Tax Questions and Its Answers



Top 10 Self Employed Tax Questions and Its Answers.A lot of us fancy having our own business. The idea of being your own boss is quite a strong motivating factor. But there is no denying the fact that you have to take care of most of the factors in self-employment. Here are the top 10 tax related question for self-employed individuals along with their answers.

  • Can I avail home office deductions?

Self-employed individuals usually skip out this part with the fear of increasing their chances of being audited. However, more than 50% of businesses run from an office at home. So, you need your bother yourself with any probabilities of audit as long as you are following the ground rules. The space that you use exclusively for your business requirements is only eligible for any write offs.

  • Can I deduct auto expenses?

Yes, you can. All expenses that are necessary and ordinary when it comes to business usage can be used for tax deductions. It is essential that you keep track of mileage and ensure you separate out own usage versus business needs.

  • What are the deductions applicable to me?

When you are self-employed, it is a bit more complicated to do your taxes. However, there are a lot of potential areas that you can opt for deductions that you could not do with your normal job. Essentially you can deduct any expenses that help you to run your business smoothly. Expenses such as marketing, internet bills, business related travels etc. can be deducted.

  • Is there a limit up to which I do not have to declare my self-employment earnings?

As per IRS you need to declare any income, irrespective of how small it might be out of self-employment. Thus, you need to report any and all of your sources of income, so that you do not attract any unwanted attention. If you sell services or products directly, it is a bit difficult to manage things. Thus, it is advisable to keep a track of all the earnings and report it.

  • Should I submit receipts for any write-offs?

You do not have to submit any receipts for write-offs unless explicitly called for.The safest option is to keep receipts of all expenses with you in a folder. It would allow you to file your taxes more effectively and submit the same if needed.

  • Is it necessary to hire an accountant for taxes?

No. It is not necessary to hire an accountant to do the taxes for self-employed. However, it largely depends on you, if you wish to take such services or not. Individuals, who had some experience with business taxes, can do it on their own with a little bit of research. But if you are not very confident about it, hiring an accountant might not be a bad idea.

  • What are the chances of me being audited?

Individuals making less than $25000 a year have 1% chance of being audited. While there is a 2% chance of being audited if the income is between $25000 and $100,000. If you make more than that, there is a little more than 2% chance.

  • What about health insurance premiums?

If you’re in business and you pay for your own health insurance premiums, you can deduct it as medical expenses.

  • Should I fill up the W-9 Form, as asked by a client?

If a company wants you to provide them with either your FEIN or social security number, they will ask you to fill out the W-9 Form. The Form which is for self-employed and independent contractors is similar to W-2 Form.

  • Do I need FEIN (Federal Tax ID Number)?

For individuals who are sole-proprietor or single-member LLC, they need not have a FEIN as they can use their social security number. Since, it is free to get a FEIN, having it would not hurt anyways.

Tax Saving Tips for Contractual and Project Based Employees

Tax Saving Tips for Contractual and Project Based Employees

Tax Saving Tips for Contractual

and Project Based Employees

 Tax Saving Tips,Being a contractual or project based employee has quite a few benefits when it comes to taxes. For an instance, you are eligible for a few tax deductions without even having to itemize the same. The following are some great ways of saving money on tax dollars if you a contract and/or project based employee.

Include Business Expenses

A lot of contract employees either shy away or are too skeptical when it comes to deducting business expenses from their returns.As a project based or contract employee, it is imperative that you keep a track of all your earnings throughout a year. If you can manage, having separate cards and accounts for business and personal usage would be ideal.

Any expenses that you pick up as part of your job, you can deduct the same. However, it must be required by your business or job profile and not any made up costs. A lot of contractual employees forget to do the same and end up paying more taxes than they should ideally pay.

For example, you can deduct mileage spent for work related travels or pay up internet bills if you use the connection only for work. The same also works for business related travels or meals.If you spend money on marketing research or coaching, you can deduct those as well.

Health Insurance

Getting a health insurance while you are a contract based or project based employee is a win-win situation for you. Firstly, you create a shield for yourself when it comes to medical expenses. Secondly, you can deduct the premium amounts from your net income; thus, reducing your tax liability. You can make use of health savings accounts as well to reduce your tax liability.

Be Organized

It might sound a bit silly, but trust us it is not. If you keep a track of all your earnings and expenses on a regular basis, it just irons out the tax filing process. A step as simple as keeping all tax related paperwork in a folder from the beginning of the year is helpful. It will ensure you do not lose hairs due to stress at year end while doing taxes. Also, reviewing the same on a regular basis will give provide you with better opportunities to save taxes as and when you can?

Retirement Plan

This is one of the easiest ways by which you can save money on taxes and yet secure a good future. Setting up a retirement fund allows you to save taxes. The money that you invest in such funds also grows tax free, provided you do not withdraw the same before the anticipated time. You can check if your employer provides with any such benefits, as they get to save taxes under the same pretext.

File On Time

This is another of those seemingly easy things to do, that a lot of us miss out on. Not filing the taxes on time is something that you must avoid at all costs. It just doesn’t make sense to pay taxes and fines for late filing on the top of it. Being organized from the beginning of the year would ensure an easier tax filing season.

Of course, there are emergencies and other work which need higher attention to be paid. If you anticipate any such things, it is better to go with an extension of tax filing. It will give you additional time to file your taxes.

Being aware of your tax liability helps you, as you know where you can save some of your hard earned money.