Running your own business is the ultimate adventure. It may not always produce a healthy work-life balance but flying solo brings tax advantages that are not available to those who work for others. Maggi Tax shares a brief tax guide that all solopreneurs can benefit from.
A foundational first step for any and all entrepreneurs is to remember that first and foremost, you are a business. Regardless of the trade or area that you focus on, it’s critical to maintain accurate and current financial records. These should include profit and loss statements, mileage logs, equipment purchase details, and any additional expenses. Keeping this information at your fingertips helps file accurate tax returns.
As a self-employed person, you are required to pay self-employment taxes that include Social Security and Medicare. This is similar to the Social Security and Medicare taxes that are withheld from wage earners’ paychecks. Currently, these need to be paid by anyone who works for themselves and earns $400 or more. Self-employment tax amounts vary and are assessed on a percentage of net earnings. Before filing, you must calculate the net profit or net loss from your business and record it on your 1040 or 1040-SR. As a solopreneur, there is an option to pay quarterly estimated tax payments for both income tax and self-employment taxes. But, if you fail to pay or underreport, you are subject to penalties and interest.
To quote David Rose, “that’s a write-off.” Entrepreneurs have the option to write off far more business expenses than a traditional company employee. The IRS defines deductible expenses as those that are ordinary and necessary to your business. Make sure to take advantage of available expense deductions related to the business use of your home like utilities, internet, portions of rent or mortgage interest, and even depreciation of equipment you purchase.
This brief introduction is by no means exhaustive. Working with a tax professional can help you identify the best financial decisions for your business. Contact Maggi Tax here or call (727) 799-1701 to schedule your appointment today.