Self-employment has its pluses and minuses. The pleasure of being control of your own workday is soon swamped by increased taxes. You have to pay not only the worker portion of social security tax, but also employer part as well. It is good that a number of tips are available to lower the imposed taxes.
Use health savings account
A number of self-employed people select health insurance plans having high deductibles. It keeps down the premium expenses. They can further decrease their tax burden by opting for H S A or Health Savings Account. Do take into account there are a number of rules in this regard. To give an example, if the 2016 deductible in your insurance plan is a minimum $1,300 to cover a single person and $2,600 for a family, you can save up to $3,350 or $6,750 for singles and families respectively. A further benefit of $1,000 is possible if your age is 55 or more. This deadline is similar to the IRA.
Pay a few deductible business expenses
Self-employed persons can claim as their deductible expenses on a number of expenses. These include dues paid to professional associations, expenses related to continuing education and training, periodical subscription expenses and regulatory fees. Licensing fees also come under personal tax exemption. The important fact to note here is that these expenses must be related to line of work in order to be deductible. To give an example, taking tuition in a foreign language is perfectly normal if you have a foreign company as a business partner. However, learning a language just for recreation is not admissible. Another point to note is that these small expenses, although insignificant on their own, could quickly add up to thousands of dollars. Do take all advantage of the ability of tax deduction. Your wallet could soon be fatter as a result.
Other retirement accounts
When it comes to tax benefits, the H S A wins hands down. Many, however, are ineligible for this scheme. There are a number of options available for the self-employed in such a circumstance. Both Roth and traditional IRA are available. Both of them permit qualified savers to save a maximum of $5,500 every year. You can save up to $6,500 in case you are 50 years old or older. Income limits are a major consideration for a Roth IRA contribution.