Employment can take several forms. Depending on several reasons, people can decide to be employed or be self-employed. Self-employment has for decades prove to be the most way of employment as one enjoys innumerable benefits ranging from free labour from family, enjoyment of all profits, to infinite job security. Self-employment is very successful way of generating personal income despite the several challenges. Getting employed in any way is accompanied by inevitable statutory tax payments against earned income. However there are strategies that self-employed individual can put into practice and get lower tax deductions against taxable income. These strategies are discussed below:
Funding Tax Retirement Account
A self-employed person has no stable workplace, as an organization that has well-furnished offices for its employees, and has to tussle around in order to make ends meet. A professional statutory retirement tax scheme therefore does not exist. Every income earned from various activities is subjected to tax deduction. Tax-deferred opportunities can be created to reduce the taxable income. Opening an account on plans such as SEP-IRA (based in United States of America) where each unit of dollar contribution made reduces the business’ taxable income up to thousands of dollars in taxes annually. These contributions is mainly meant for retirement and has deduction effect on taxable income. Some contributions, for example, allows contributions up to 25% of compensation depending on state tax rate on person’s level of income.
Maximize on Home-office Deduction
Most self-employed individuals conduct their daily business activities in home offices. When home offices are spacious, one is required to fill a lengthy form for entering household expenses for mortgage interest, repairs and not forgetting insurance cover policy. The recently amended home office deduction allows only $5 per square foot of home office space with a maximum of $1,500 tax deduction. Tax charge therefore calculated based on size of office and will be prudent to have as small as possible office. This simple strategy saves an ideal time for preparing taxes.
Get Health Insurance Premium Tax Credit
Self-employed individuals can take health premium tax credit for themselves and their families. Such health premiums include the controversial Obamacare. It not only help them afford desired health insurance cover for better health services but also reduction on tax bill. Tax deductions will be made against the contributions to health tax premium. It is one of the bright idea to figure on how to save income on tax bill an as well as have a healthy life.
To sum up, every self-employed person dream to have better income that is equivalent to the work done. Statutory deductions has always been as sign of paying allegiance to your country. Although large tax deduction can be cumbersome and therefore demotivating. It only takes one to apply above simple strategies to have lower tax deduction against their national insurance number. It is an easy accounting to work out their advantages and later realize commensurate income that guarantees financial stability to self-employed person.