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Tax Saving Tips for the Self-Employed. Be a Tax Saver, Not a Tax Payer

Tax Saving Tips for the Self-Employed

Tax season will be here shortly. As a former paid tax preparer I can state many small or home business owners are paying too much in taxes. Be a tax saver not a tax payer.

General Rules:

Use Schedule C to report business income as a sole proprietorship.  If more than one individual is an owner, then the business is not a sole proprietorship and Schedule C cannot be used.  Partnerships and joint ventures must file on Form 1065.

A husband and wife cannot jointly own a business as a sole proprietorship; and cannot split a sole proprietorship and file two Schedules C.  To avoid being classified as a partnership and having to file on Form 1065, a husband and wife team operating a business together should treat one spouse as the owner and the other as an employee. 

If a sole proprietor owns more than one business, filing a separate Schedule C for each business is required.  Penalties apply if more than one business is combined on a single Schedule C.

Specific Tips:

Turn charitable donations into business deductions by giving money to charities in exchange for advertising.  Donating to that church fund raiser?  Buy advertising instead.

Maintain a qualified home office and deduct otherwise nondeductible home expenses.  It is easiest to do this if you have a room set aside for your business. Determine how much that room is in proportion to the house, and you can deduct certain expenses proportionally.  Expenses include mortgage interest (but not the mortgage itself), electricity, telephone, insurance, and expenses for maintenance and repair.  Certain mileage also becomes deductible. 

Employ a child and save on FICA (Social Security taxes) and shift income to a lower tax bracket.

Convert nondeductible hobby losses into deductible business losses by operating the activity in a business-like manner.  The activity must be conducted as a "for profit business."  "For profit business" activities include keeping thorough and business-like records and files, using a separate business bank account, using separate credit cards, maintaining insurance, registration, licenses and certifications normally needed by that type of business, maintaining separate home office among other things.

As with any business, individual circumstances vary as do state laws.  Consult with your attorney or tax consultant to determine individual requirements and needs.

For moe information, please visit MyTaxSaver.info


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