Tax Tips:

Tax Saving Strategies for the Self-Employed

  • If you have more than one business, you should combine net earnings for each business to determine your net self-employment income. A loss incurred in one business can offset the profitable income of another.
  • Establish a Keogh retirement plan before the December 31st deadline for the tax year. You will be able to deduct the contributions on the present year's tax return. You don't have to actually put the money into your Keogh until the date of your tax return.
  • If your self-employment income is less than $400 per year, you do not have to file Form 1040 Schedule SE or pay self-employment tax.
  • Don't forget to include deductions for health insurance premiums. The allowable deduction is limited to the lesser of either 60% of the amount paid for health insurance premiums for you, your spouse or your dependents or the net profit from business less the amount claimed for a Keogh or SEP deduction.
  • When filing a Schedule C you must use Form 1040, not 1040A or 1040EZ.
  • If you are a sole proprietor or an active partner in a partnership, the net earned income from the business may be subject to self-employment taxes. So don't forget to determine whether your compensation is subject to these taxes.
  • Consider employing your underage children. A child under the age of 18 that is employed by his/her self-employed parent in an unincorporated business does not have to pay FICA taxes, therefore the parent does not need to pay the employer's portion of FICA taxes. In addition, the parent is allowed to deduct up to $4,250 for wages paid to the child.