8 Tips for Self-employed Taxpayers
8 Tips for Self-employed Taxpayers
Bookkeeping Software
When you are self-employed it can be easy to lose track of all your bills, invoices, checks, and receipts amongst your other business related documents. To keep on track with your bookkeeping I would suggest trying bookkeeping software like QuickBooks.
Keep Good Records
In addition to investing in bookkeeping software, you will also need to keep all of your receipts and other tax-related documents together. If you do not already have one, purchase a filing cabinet and designate certain folders for tax receipts and papers so you can stay prepared.
Business Expenses
Remember while you are making your day-to-day purchases to keep any business-related receipts. These expenses are tax deductible, and even the small meetings with colleagues at coffee shops add up! Also, taking the time to add up these receipts once or twice a month will save you a lot of time later on.
Home Office Deduction
If you have a home office in your house or apartment, you may qualify for a home office deduction. As long as you have no other stationary place where you do business and the office is used exclusively and on a regular basis for business, you should qualify.
Check in with the IRS
From time to time, check in with the IRS website to make sure you’re taking advantage of all the self-employed tax breaks you can. Also, check the guidelines and rules and make sure you’re doing everything correctly and legally. Having a financial advisor should be enough, but doing some of your own investigating never hurts.
Child Care
You can deduct childcare costs for your children, as you are self-employed and may need some help. This is an important deduction that too many self employed individuals miss out on, so make sure you take advantage of it if need be!
Retirement Plans
Setting up a retirement plan is not only good tax-wise, but also a great idea for saving towards your future. The SEP IRA retirement plan is designed especially for the self-employed, and taking advantage of these special programs can be very beneficial both now and later!
Defer Income
Depending on your situation, income deferral may or may not be advantageous for you. If you have made a lot of revenue already this year and expect slower business next year, it may be a great idea. On the other hand, if you expect next year’s revenue to be fairly similar then there may not be any reason to defer any income.
The Tax Lady the Roni Deutch opened the Roni Deutch Tax Center to fill the need in this country for competent income tax return preparation. For more tax articles, check out the Roni Dutch Tax Center Tax Help Blog.
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The Right Retirement Plan for the Self-Employed The self-employed and the small business owner carry the same retirement needs as those who head for the office cube every morning. Fortunately, Uncle Sam help you out in socking away retirement savings, so that you can build a nest egg for your golden years and lower your tax bill at the same time. Keep in mind, that when looking for a plan for the self-employed, there are several things to consider such as tax benefits, plan costs, contribution requirements, and deadlines for establishing the plan. So, here are some common types of plans you can look into: Solo 401K A solo 401k combines both a deferral portion and a matching one. So, you can contribute ,500 (or ,000 if you will be 50 or more at year’s end) plus 20% of your self-employment income (this is your total business income minus half of your self-employment tax) or 25% of your compensation if your business is incorporated — for a maximum of ,000 (or ,500 if you are 50+). You must establish your plan by Dec. 31, 2010, if you want to claim a 2010 tax deduction. SEP IRA The SEP IRA is best for high-income business owners who can rake-in income of at least 5,000, to reach the maximum contribution of ,000. But, if you contribute to other defined contribution plans like a 401k or an IRA, that will affect your contribution limits with the SEP. In other words, all of your defined contribution investments cannot exceed ,000 in total. Just like with regular IRA’s, withdrawals after age 59.5 are taxed as ordinary income and withdrawals prior to age 59.5 may incur a 10% IRS penalty, as well as income taxes. April 15th is the deadline to establish and fund a SEP for the prior tax year. If an extension was filed, you can establish and fund a SEP IRA by October 15th. SIMPLE A SIMPLE IRA plan can be set up effective on any date between January 1 and October 1, only if you have not set up a SIMPLE IRA plan before. If you have, then a SIMPLE IRA plan can be set up effective only on January 1. Keogh Plan The Keogh Plan is also a tax-deferred plan much like a regular IRA, but the difference is the contribution limits and that depends on the type of Keogh and this depends on the plan. There are two types of plans: profit sharing and a defined benefit pension. Annual contributions to Keogh profit-sharing plans are based on a percentage of self-employment income and are capped at ,000. A plan document must be drafted in Year One (this may cost a couple hundred bucks), and the IRS requires an annual report. The Keogh defined benefit plan is set up to receive a specific benefit at retirement. A plan can be created that can provide an annual retirement benefit up to 5,000 a year, but the actual amount is determined by a formula, based on desired benefit, income, assumed investment returns and how many years until retirement. Also, with this kind of plan, you are burdened with the expense of an actuary. Set the Keogh Plan up by the end of the tax year, for which you would like the plan to take affect. H. Bradley (Brad) Bertrand is President and Senior Financial Advisor at Bertrand Retirement Strategies, LLC. Headquartered in Oklahoma City, Oklahoma, Bertrand Retirement Strategies is one of the premier independent financial services in Oklahoma. The firm provides financial planning, investment advice and wealth management services to over 300 clients. Since 1987, Brad has been helping clients make prudent financial decisions for their retirement, focusing on safe investments that provide growth and lifetime income. He has also hosted over one hundred educational workshops, and has spoken on numerous radio programs and at various public forums, discussing topics relating to retirement, investments, estate planning, asset protection and tax reduction. Bertrand Retirement Strategies can be found online at http://besaferetirement.com and http://besaferetirement.wordpress.com. More Sep Ira Articles
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The Right Retirement Plan for the Self-Employed
This is a great option for anyone who has no employees except for a spouse, and wants to maximize their contributions with a tax-deferred plan.
Also known as Simplified Employee Pensions, these plans are uncomplicated with low fees. They are 100% tax-deductible and investments grow tax-deferred. The SEP IRA allows you to contribute and deduct up to 20% of your net self-employment income, meaning – self-employed income minus one-half of the self-employment tax. Also, if you run an incorporated business and your income is based on a W-2, the contribution limit is 25% of that income.
A SIMPLE IRA is exactly that, simple. But, it actually stands for Savings Incentive Match Plan for Employees. It was created for small businesses with up to 100 employees earning at least ,000 in the previous year. For this plan, the maximum contribution is ,500 plus 2 or 3% of income. The cost and the complexity of opening a SIMPLE plan is low, with an application of only a few pages and can be done in as little as 15 minutes at your local bank, brokerage firm or mutual fund.
This plan is the copy-cat of retirement programs similarly found at corporations. It’s certainly the most expensive and complicated plan of all self-employed retirement plans.
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