Everyone is always looking for ways to reduce taxes. And it can be even more important for owners of small businesses, because you bear an even higher tax burden than a regular employee.
Table of Contents
1. Deduct Your Valid Expenses
The first thing you can do is make sure that you are accurately keeping track of business expenses, and deducting them appropriately. You can deduct anything that is “ordinary and necessary” to conduct business. For most individuals, this includes office space, office supplies, advertising, and more depending on the type of business you run.
2. Deduct Health Insurance Costs
If you are self employed, you can deduct the full cost of health insurance expenses you paid for yourself, your spouse, and your family, as long as you had a net profit for the year. By deducting the cost of health insurance, you can lower your taxable income, and thus lower your tax bill.
3. Deduct Half Your Social Security/Medicare Payments
If you’re employed traditionally, your employer pays half of your Social Security and Medicare payments. However, if you’re self employed, you owe the whole amount. But, the government does give you a break in that you can deduct half of the amount you paid from your total income. So, while not lowering your self employment tax, it does reduce your total tax due.
4. Utilize Retirement Accounts
Finally, you can reduce your total tax if you use tax free savings accounts, like an IRA or solo 401k. These accounts don’t reduce your self employment tax, but do help you reduce your total tax each year. If you’re self employed, you can take advantage of these accounts up to their contribution limits to avoid income taxes on your income.
By using these strategies, you can lower your tax bill at the end of each year.
About Carson Derrow
