Some of the most significant benefits for self-employed workers are tax-related benefits. Examples of self-employed tax benefits include the self-employed tax credit and deductions for health care and retirement plans. Often, self-employed workers can deduct business-related expenses such as home office costs, travel and entertainment, and education courses. Any person wishing to take advantage of these self-employed tax benefits should first work with a tax professional before attempting the deductions on his own. Working with a professional can help ensure the self-employed person pays and receives the correct amount, eliminating future problems like audits and back taxes.
Since they don’t have conventional employers who deduct taxes from their paychecks, self-employed individuals must handle their own taxes according to the government’s schedule. For many people in the United States, this means they must file their taxes at some point between 1 January and 15 April. Some self-employed people can choose to handle their taxes quarterly throughout the year. Despite the similarities in the way they file taxes, conventionally employed people typically end up owing less money or getting higher tax returns than self-employed people. This is because conventionally employed people have taxes taken out of their paychecks throughout the year.
Even without the convenience of having an employer deduct the necessary taxes from their paychecks, some of the most common benefits for self-employed people are the tax benefits. This is because with self-employment comes certain tax deductions for which many conventionally employed people aren’t eligible. These deductions can help decrease the amount of money self-employed people must pay when they file their taxes.
For example, in the United States, one of the tax benefits for self-employed people is the self-employed tax credit. This is a deduction self-employed people can make when determining their adjusted gross income. To make this deduction, a self-employed person must first determine his self-employment tax. The self-employment tax is similar to the Social Security and Medicare taxes that conventional employers automatically deduct from their employees’ paychecks. Once the self-employed person knows his self-employment tax, he can deduct half of that number from his adjusted gross income.
Additional benefits for self-employed workers include deductions for health insurance or health care and self-employed retirement plans. Many employers cover all or most of these costs with their employee benefits packages, while self-employed people pay for them out of their own pockets. Depending on the situation, however, self-employed workers can use these deductions to offset the annual cost and decrease their income tax payments.
Other tax-related benefits for self-employed people include deductions related to their businesses. Examples include their home offices, their business-related telephone, fax, and Internet use, and vehicle and travel expenses. Also, self-employed people can sometimes deduct the costs of meals and entertainment for clients, education courses directly related to their businesses, and subscriptions to publications for readers in their lines of work.