A self-employed small business owner or potential small businesses owner, making sure you pay the correct amount of state and federal income taxes, benefits and payroll taxes on your own can and often is complicated.
If you are entering the world of self-employment for the first time, you may not be aware of how much your payroll taxes will cost and the impact on your bottom line. A recent study done by
There are number of strategies you can employ to help lower your self-employment taxes at the end of the fiscal year. Here are some important considerations for your business.
START WITH A BASIC BUSINESS STRUCTURE
How is your business setup? Your business structure can affect self-employment taxes. Are you an S-Corporation? That can reduce self-employment taxes. This is an important conversation to have with your tax accountant.
Choosing the right business entity is more than an important decision, it can lower or increase your net taxation. You might want to look at the potential 20% pass-through deduction for the self-employment, sole proprietors, S-corporations and partnerships can and should be claiming.
For many businesses, it only makes sense to be an S-corporation if you can save on taxes. How will you know? First you have to identify what a reasonable salary will be based on national averages. Any profit above and beyond that will remain in the company. You can’t pay yourself 10K in salary and 90K in distributions. The salary has to fall in line with a fair market rate for your position. This is closely monitored by the IRS, if you try to cheat the system, the IRS will most likely get you audited.
CAN THEY LOWER THEIR NET PROFIT?
You may not realize that you net profit is the gross revenue minus your deductible business expenses is used to calculate your self-employment tax. Lowering your reported net profit really is a key strategy to lowering your self-employment taxes.
Make sure you are allowing for all of the included allowable business expenses on your schedule C like, business travel, entertaining, cell phone bill, cost of banking fees, web hosting, office and cleaning supplies, etc. These expenses can add up fast and reduce your tax burden. If you take any classes to further your skills, you can write off those expenses too. So keep track of all of your expenses.