5 Important Tips For Reducing Freelancer Taxes
Like every other Employee or Small business owner, Freelancers must also pay taxes. When you pay taxes as a Freelancer, you have to be the accountant, the calculator, the tax rep, the go-between, etc. While doing your taxes might seem like a lot to do, it actually isn’t. With the right know-how, you’ll be able to do your business taxes with ease. However, nothing sounds like a miracle than saving money on your business taxes! Read on to get Tips for Reducing Freelancer taxes
Here are 5 effective tips on how you can reduce your business taxes:
1. Hire A Family Member
“When you hire a family member onto your business, you’ll reduce some of your business taxes,” says Simone Cortez, a writer at 1 Day 2 write and Write my X. “The Internal Revenue Service lets you choose from many options, when it comes to saving on your taxes. Some small business owners even opt to pay a lower marginal rate, or opt to get rid of the tax on income paid to their children. The IRS also lets business owners hire their spouses, who aren’t normally subject to the Federal Unemployment Tax Act, or FUTA, tax.”
2. Have A Plan
It’s important to have a plan when preparing your business taxes. As mentioned, you have to do a lot in dealing with your business taxes. But with a plan, “a lot” will turn into “not much.”
Here are some things to think about when creating your plan:
- How you’ll put money aside for your business taxes
- How you’ll request a line of credit to pay your business taxes
- How often you want to pay your business taxes (i.e. quarterly)
- What your interest rate will look like (depending on how often you’ll plan to pay taxes per year), etc.
3. Open A Savings Account For Health Funds
You can also consider opening a health savings account, or HSA. To do this, you’ll first need a high-deductible health plan for an HSA to be useful to you.
In essence, an HSA helps you reduce your income eligible for taxation. In addition, the HSA helps you with planning future medical costs, should any medical emergencies rise up during your business venture.
Here are some of the qualifications:
- If you’re single, you can contribute up to $3,500.
- If you’re married with child, you can contribute up to $7,000. AND,
- If you’re the age of 55 or older, you can add an extra $1,000 to your contribution.
HSAs come with advantages, including:
- Contributions going in pretax
- Unused money being invested in
- Having tax-deferred gains, AND
- Allowing you to withdraw the money for qualified medical expenses tax-free
4. Plan For Retirement Early
“It’s never too early to plan for your retirement,” says Edward Miller, a tech writer at Brit Student and Next Coursework. “While you might have to give up your 401(k) when doing this, you can still consider several other retirement account options that’ll help you maximize retirement savings and get tax benefits. Some of these other options include 403(b) plans, a Simplified Employee Pension Plan or SEP, or an IRA or a Roth IRA. By thinking about retirement now, you’ll have a nest egg save up when it comes time to close your doors, or pass the business torch to someone else.”
5. Evaluate Your Business Structure
Finally, keep in mind that small business owners won’t have the benefit of an employer paying part of your taxes. Instead, you’ll have to face things like Social Security and Medicare taxes on your own. Forming an S-corp can significantly reduce your Social Security and Medicare tax bite. Taxhub has saved some clients thousands of dollars a year employing this strategy. To get more info on this refer to our S-corp calculator page.
Now, suppose your business is taxed as a Limited Liability Company (LLC). You’ll still need to pay taxes as an LLC. However, you might be able to get rid of the employer-half of Social Security and Medicare taxes. How? By taking risks, or by paying yourself an appropriate salary.
As you can see, with a few simple steps you, the small business owner can save on your taxes. With an effective plan in place, and by following the 5 tips mentioned in this quick guide, you’ll be able to keep more of your money when it’s tax time.
You can consult a certified tax professional if you have any inquiries about business taxes, to ensure that you’re doing your taxes right.
About the author:
Michael Dehoyos is a writer and editor at Thesis writing service and Write my coursework. He is also a contributing writer at Origin Writings. As a business writer, he writes articles about marketing trends and various business practices.