Calling yourself as a self-employed is a desire of many people. Being self-employed comes with several benefits to enjoy, like:
These three benefits, raise hope for many to do something of their own. But before you move forward to become self-employed, make sure you know what it impacts it can bring to your tax liabilities. Self-employed tax? Yes, aside from the income tax, you may be required to pay self-employment taxes in Los Angeles that support the Medicare and social security programs. In fact, as a self-employed professional, you’re likely to bear more tax liabilities when it comes to payroll taxes.
So, it becomes vital for you to find some effective solutions against increased self-employed tax burden. Luckily, the hiring of tax preparation expertise will give you a sigh of relief as they guide you thoroughly the effective ways to legally reduce your tax liability as a self-employed professional- and to save more of your hard-earned income.
Before jumping into the measure to take, let’s first understand what exactly, self-employment taxes are.
What are Self-Employment Taxes- And Who Pay Them? In simple terms. Self-employment tax is a tax paid by the individuals who are their own bosses- either through owning businesses or being working as a freelancer or contractors. These individuals account for social security and medicare and are required to file SE (Self-employment) taxes for themselves.
How to Lower Self-Employment Taxes?
Ok, now that you know what self-employment taxes are and who pays them, let’s jump into the strategies of tax professionals that you can use to lower your self-employment taxes.
What exact you pay into Medicare and Social Security is known as SE tax. Being standing into the position of SE, you are authorized to claim for an eligible deduction on your SE taxes, after seeking the consultation of tax professionals in California.
In this circumstance, you can deduct up to 50% of your SE taxes from your taxable income. Technically, it will not actually lower your SE taxes that you owe, but reduce the total amount you’ll pay to the IRS.
It might sound counter-intuitive, but spending more on your business can actually help you save more by lowering your liability to SE taxes.
The SE tax of a business owner heavily based on his/her net income. And because business expenses, reduce your net income, so it will automatically reduce the amount you’ll owe in SE taxes. Therefore, don’t forget to include your eligible business expenses incurred on like purchasing of office equipment, advertisement, and labor costs to lower your SE tax burden.
You might get surprised to know that the way you organize your business can make a big difference in your tax liabilities. By organizing as an ‘S’ corporation instead of an LLC or sole proprietorship. With an ‘S’ corporation, you become eligible to pay yourself a salary and eventually leverage the opportunity to lower your SE taxes on a portion of it.
Claiming for deductions is another legal way suggested by a tax expert to lower your taxable income- which in turn, will reduce your tax burden for self-employment. There are a number of deductions you can claim as a self-employed individual:
The point is, there are many more deductions available for self-employed- and if you want to lower your SE taxes, you should seek the reliable services of an experienced tax professional in California and Los Angeles, as they only have the bundle of knowledge of how to reduce the one’s self-employment tax liabilities.
