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Tax Difficulties of the Self-Employed in AmericaSalem-News.com Business
IRS tax problems can be tough, but you should never lie to get a lower bill!
(SALEM, Ore.) - In the United States, there are millions of people that classify themselves as self-employed. Most people see a major benefit in being self-employed. You generally get to be your own boss, with unlimited income potential, and you get to work on your own schedule.
Unfortunately, labeling yourself with this moniker also has many downsides, including a lot more risk. Your salary is not guaranteed when/if you have a bad month, and you foot the bill for healthcare, retirement, insurance and business expenses.
You'll also have to jump through a number of additional hoops when submitting your taxes each and every year.
To be clear, the self-employed really get shafted when it comes to tax time. This comprehensive guide covers tax difficulties of the self-employed.
Bigger Tax RateUnfortunately, the self-employed are required to pay a higher tax rate than regularly employed individuals. The self-employed are required to pay a full 15.3%. 12.4 percent accounts for Social Security taxes, while 2.9% is for Medicare taxes.
Generally, the employer will withhold these taxes and pay their portion. As someone who is self-employed, you are responsible for dealing with them all. You may also be subjected to state and local income taxes.
Nevertheless, the self-employed almost always pay more at the end of the year than regularly employed individuals. This is the case, because regular employees have been paying throughout the year and may even end up getting money back when they file at tax time.
More DeductionsThe good news is that the self-employed will be eligible for more deductions.
They may include these and more:
This is a good thing in the long run, but it can also make filing your taxes much more difficult and time consuming.
The self-employed have the freedom to structure their business however they see fit. That structure in itself may determine how (and how much) you are taxed. Some options may help cut your taxes in half. Switching from a sole-proprietorship to an LLC or S corporation may be worth checking into.
The self-employed have access to the home office deduction. This single deduction can help knock the amount you owe down significantly. Just remember that this deduction is only available to those that have an office at home.
Do not lie to the IRS, because you may just get audited. IRS tax problems can be tough, but you should never lie to get a lower bill! If you do, you’ll face innumerable difficulties in the future.
You’re Solely ResponsibleAnother major negative of being self-employed is the fact that you’ll be required to handle everything. You must figure out how much money you’ve made throughout the year and how much you’ve spent. This is something that regular employees usually never have to deal with.
Using tips can help you better keep track of your monthly and annually wages. You’ll need this information in the future when filing your taxes. Also, it is a good idea to begin keeping all of your receipts! You might be able to use your purchases as deductions as well.
Making Life EasierWhen it comes down to it, you should always do your best to make your life easier. This is why you should consider using a software to keep track of your weekly, monthly and annual earnings.
You should also figure up your monthly taxes at the end of each month. Getting ahead of the problem is the best way for the self-employed to tackle their tax issues with ease!
Source: Salem-News.com Special Features Dept.
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