Solopreneurs Take Note: Here’s How to Win Over This Tax Season

Be your own boss: That’s a statement that defines solopreneurs in a nutshell. People all around the world have been turning their talents into businesses for years now. And what's better than running a business on your own terms? You can be a baker, a potter, a painter, a freelance writer, photographer, accountant, and the list shall go on. The freedom of being a solo entrepreneur or as we call it a ‘solopreneur’ is boundless and the satisfaction is unexplainable. On top of that, there come the tax benefits. Have You Made Your Most Important Call Already? We are in the middle of the busiest season of the year- the New Year is right around the corner and the tax season is at its peak. So naturally, the season has all of us busy. But, amidst the celebrations and the holiday merrymaking, there are some things that cannot wait. So, a few calls need to be made before the last day of the year arrives. 

Accountants all over the country are constantly in touch with their clients and taking care of their tax-related queries. Accountants guide their clients in a number of ways. They do their taxes, teach them how to use and benefit from tax software hosting, and advice them in making critical business decisions. So, if you are running your business solo and are unsure about what your tax liabilities should be this year, you need to be calling your accountant already.

Tax Moves Solopreneurs Must Know More often than not, due to lack of knowledge or pure ignorance, self-employed professionals end up paying more taxes than they were supposed to. Accountants often suggest that self-employed or single business owners must seek professional help in doing their taxes. The reason is obvious- they may be leaving their potential savings on the table instead of taking them home. Here are some helpful tax moves that can save your taxes this season:

• Pay Self-Employment Taxes

Yes, self-employment tax is a thing. If you are not aware of what self-employment tax is all about, it consists of two main taxes i.e. Medicare and social security. If you were an employer, you would have paid at least one of these on behalf of your employees. But being self-employed, you will be required to pay both the taxes on your own. In case your income exceeds $127,000 per year, you will be excluded from paying the social security tax.

• Do Not Overpay Your Fourth Quarter Taxes

The new tax code has lowered the individual tax rates, doubled the standard deductions, and then there are pass-through deductions as well.  Most Solopreneurs are unaware of these facts and how they will impact their taxable income. This is one reason why solo-entrepreneurs need to call their accountants right away. It is probable that they may be in for a surprise, i.e. they may end up paying lower taxes than they were prepared to pay.

• If Your Family Is Working For You Pay Them

It is common for your kin to help out in the family business. If your kids are fond of helping you at your workplace after school or on the weekends, consider them hired. Pay them in turn of the work they do for you, even if it is as simple as attending to the customers when you are away or running errands. This way, your income goes directly into the family and you get to deduct that from your net income, which means fewer taxes. The money your kids get from you can be directed to the 529 plan and should not exceed $12,000 a year. This tax-deferred investment can later be used to pay for your kids’ school or higher education. That, for sure is a win-win situation.

• Take Into Consideration Your Home Office Deductions

There is no point in refraining yourself from taking the home-office deduction. IRS is not against people running a home-office and they are not going to red-flag anyone and everyone who is doing so. So, if you are running a home-office discuss it with your professional accountant. IRS has drafted some very clear guidelines and it can be beneficial if you mention it on your tax return.

 

The Final Verdict

It is always beneficial to know how your financial moves are going to impact your tax returns. If you find yourself surrounded by doubts, it is best to hire a tax professional. A CPA can streamline your tax process right from the start. Apart from that, professional tax preparation software such as ProSeries or Lacerte can simplify your tax process, save time, and reduce your day to day stress. This smart tax preparation software can also be hosted on the cloud, for example, ProSeries hosting and Lacerte tax software hosting, so you can enjoy the freedom of access and save infrastructural costs at the same time.