The best way to be financially independent while keeping your tax liability low is to be self-employed. You don’t necessarily need to own a huge business to enjoy the perks. It can be a smart part-time or full-time business. Having your own business offers you a plenty of advantages. You have the freedom to take your decision on your own without having anyone interfering in your matters, you are the one planning things and enjoying the returns. In short, you are your own boss and have the final say in everything. However, nothing comes free of cost and same is the case with being self-employed. Apart from enjoying the profits, you become the sole responsible for bearing losses as well.
If you have made your mind to start a new business, read on to know the tax deductions you can enjoy while being self-employed.
You have to pay a certain amount of price for being your own boss and enjoying its perks. The price comes in form of self-employment taxes. This type of tax is a portion of Medicare and social security taxes that employer has to pay. Every individual that is working must have to pay this tax. For self-employed, the rate is 15.30 % and 7.65% for employees in the year 2017.
Irrespective of the fact whether you own your workplace or have rented it, home office deductions are made from your taxable amount. It is rather a complex procedure to calculate this deduction. Normally they are based on the percentage of your house that you are using for the purpose of conducting your business. For example, if you are using a single room of 200 sq. feet in your house as your office and the total area of your house 2,200 sq. feet, you can calculate the percentage (in this case 9.09%) and right it off. Furthermore, you can also deduct the direct costs of the space in your home that you have particularly dedicated for office use. However, you may be asked to submit important information of your workplace for these deductions. You need to have correct measurements of your house and the workplace for this purpose.
You can also enjoy tax benefits with the vehicle that you are using for business purposes. To make a claim for these deductions, you need to make proper and accurate records of your vehicle. You can choose either of the two available options for this purpose:
- Get your actual expense deducted as tax deductions.
- Get the deductions at the standard mileage rate.
Among the two, the latter is more preferred by self-employed as you don’t have to maintain extensive records and it is rather easier to calculate. All you need to do is to keep the track of miles that you have traveled in that particular vehicle for business purposes.
Self-employed individuals can also enjoy deductions on business credit cards. However, you can enjoy the deductions on solely those items that you have purchased from business credit cards for business purposes and have incurred interest on them.
Apart from the benefits mentioned above, there are many others deductions you can enjoy while being your own boss. Although, it comes with many responsibilities, but the perks of being self-employed definitely overpower the cons.