Self-employed individuals always cringe at the amount of taxes the pay to the IRS and state. Here are tax strategies for self-employed individuals that reduce those tax amounts.
The good news is being self-employed is one of the best tax strategies out there. Unlike a salaried employee, the full scope of tax credits and deductions available in the tax code are now available to you. The key, of course, is understanding the available deductions and organizing your business in a manner that allows you to maximize the write-offs.
The number one tax strategy for self-employed individuals is to keep receipts for every business expense and write them off. Practically anything can be deducted, so do it. Acceptable expenses include cell phone usage, business mileage, office supplies, home office deductions including part of mortgage or rent and so on. If you've filed a tax return while self-employed, you are probably already aware of this so lets move on to more specific tax strategies for self-employed individuals.
Maximizing your non-capital losses can result in major tax savings. If your expenses exceed your income for a year, you obviously will not have to pay taxes for that year. What most people don't realize, however, is that such losses can be carried forward for seven years and deducted against future income. Alternatively, the same losses can be carried backward three years to recover past taxes paid. The end result of this situation is you can turn a bad business year into an income generator by applying the losses to taxes in other years which effectively wipes out your tax bill for those years.
Another tax strategy is to look at your side businesses. If you have one business, you'll often have a second one that is tailored to making some money off a personal interest. While you are in it mostly because you like it, you may not realize it qualifies as a business and can help you reduce your taxes. Let's assume you are primarily a self-employed consultant, but also write travel articles on the side. You may view the travel articles as a hobby, but it is in fact a business. If you've sold or even tried to sell any of your articles to a publication, all of your expenses related to travel writing can be deducted from your taxable income. This includes trips and so on. These, deductions can significantly reduce your taxable income from the consulting business. Make sure to get a grasp of your overall business efforts, even if you don't really consider them to be a business.
Consider employing your children to save on taxes. A child under 18 that works for you does not have to pay FICA and so on. If the total wages for the year are under a certain amount, they will pay no taxes and you can write off this amount as a legitimate business expense. Of course, the child needs to actually be doing a legitimate business task, but filing and similar manual tasks certainly will qualify.
Tax strategies for the self-employed are plentiful. If you are self-employed, consider getting professional help. The Bean Counters Bookkeeping team has saved our clients thousands upon thousands of dollars in taxes, more than making up for their fees, plus, you can also deduct our fees!
When you hear the word accountancy, it makes you wonder what accountancy really means. Many people come to a quick conclusion that accountancy is just a word or term to go with accounting. Many people do not realize, however, that accountancy is the life of any thriving business and is a necessity within any establishment. Once you understand what accountancy is, then you will realize how important of a role it plays in how we run and operate our business finances. We will go over some of the basic aspects of accountancy.
The core of accountancy is maintaining extremely accurate records of any and all aspects of a business and how it earns and spends money. You must maintain multiple types of records to account for every aspect of your business, which is why accountancy can become a very complicated process but is necessary. Different parts of these separate records are your accounts receivable and payable, your current inventory, all of your sales orders for your current tax period as well as an accurate database of your past sales records and your purchase orders. You must also maintain an accurate account of your bank statements and a backup record to cross-reference all of your records to make sure they are accurate and up to date. This is only one part of accountancy.
There is another aspect of accountancy which involves knowing what to list each transaction as. Now in accountancy, you need to be able to define what are your assets, knowing how to identify your liabilities, being able to show your expenses as well as you positive income. In order to do this properly, you must know how to define these different terms and what they do and do not apply to. This can make what some would view a simple task of maintaining proper records even more complicated.
These two parts of accountancy are extremely important, not only for tax purposes but also for banking reasons as well as audits that can arise form businesses that you interact with. Accountancy also provides several benefits to businesses that use accountancy properly.
The biggest and most obvious benefit of accountancy is being able to pay your taxes accurately and on time. However, this is a small benefit compared to other vital benefits that accountancy brings. Accountancy can help you keep an accurate spending balance for your bank accounts, as well as give detailed reports of all of your expenses and cash flow which is necessary for audits. One benefit that you can gain from accountancy, is maintaining accurate expenses and being able to reflect that in your products prices. If you do not accurately maintain records of your costs, then you could accidentally underprice your products and actually lose money. Accountancy will give you a detailed projection of your costs and accurately show you your profit margin that you can compare with your labor and other expenses. Many businesses suffer financially because they do not keep accurate records for every aspect of their business, which is why accountancy plays a very strong and important role in a business. Without accountancy, a business would suffer and eventually fail as it would have no records or projections to help it progress.
Need help managing your bookkeeping and accounting? Our entire team hold degrees and are fully qualified to help you fill the need for proper accountancy in your business. Please contact us for a free consultation.
Capital Gains tax is a federal tax penalty that is imposed on capital accumulation, investment and property. Some of the income that is subject to capital gains tax includes the sale of an investment, a home, a family business, a farm or ranch or even a work of art.
The capital gains tax is applied on the difference between the price paid for an item and the money received from selling it, or the capital gain.
The most common form of capital gain for people is the sale of their corporate stock. The capital gains tax rate for individuals is currently at one of its highest rates ever and is at 28% while the corporate rate is at its greatest level in history, namely 35%. There is an inequality with capital gains tax in the fact that people must pay taxes on all of their gains but are only able to deduct a portion of their losses. This particularly applies to investments that fluctuate between gains and losses over time.
In many states taxpayers are liable, not only for the federal capital gains tax but also the state's own form of capital gains tax. This can actually take the combined rate to almost 40%. California and New York are amongst the highest in the country.
For the government, the capital gains tax payment represent 6% of personal and corporate income tax receipts and 3% of total federal revenues. There is a lot of controversy surrounding the capital gains tax that individuals and corporations have to pay but it actually brings in much less revenue for the federal government than most people would think.
In the USA, capital gains are not indexed for inflation which means that the seller pays capital gains tax on the real gain and also on the gain attributable to inflation. This is one reason that the capital gains tax is lower than regular income tax rates.
The difference between capital gains tax and all other forms of federal tax is that it is basically a voluntary tax. People can avoid paying any of the tax by simply not selling their assets. This is becoming increasingly common, especially with the uncertainty of the stock market, and the government estimates that there are trillions of unrealized capital gains which would all be subject to capital gains tax if it was sold.
If you think that starting your own business is a cakewalk, you're wrong. Aside from developing good products and services, you still need to sell them to the market. One of the essential factors in running a business is effectively managing finances. The language of any business, whether big or small, is accounting.
The business scene is always loaded with work pressure. Therefore, there is an ongoing need for handling accounts and finances effectively. Even small businesses need to be organized to achieve success and to do this, the business owner should get the appropriate accounting software. Businesses usually set long-term goals and to reach the goals, accounting management is required. If you want to be successful, you'll need accounting software. Manually doing all the accounting works can lead to a lot of errors which can terribly affect your bottom line.
As owner of a small business, you have to know where funds come from and where the go. If you decide to do accounting tasks manually, it can consume a great portion of your time and unless you've got a degree in accounting, quite frustrating.
Here are some of the benefits that you'll get by using accounting software.
You can finish all the accounting tasks promptly. You will be able to run your small business without too many problems.
You will be provided with correct reports as well as special tools to make accounting tasks a lot simpler. That way, you can manage all the financial data of the business effectively.
In minutes, you can manage the cash flow of the business.
With robust accounting software, it will now be possible to predict revenues, bills, and generating reports.
These are some of the benefits of using accounting software. However, don't purchase the first accounting software that you come across. You see, there are things to consider when selecting the proper accounting software for the business. You have to determine the software's functionalities. It should be user-friendly and most especially, it should resemble the paper counterparts so that you can run the software smoothly. Once you're familiar with the software's layout, you can already explore its functionalities.
Most accounting software is based in the cloud and works well with e-commerce. If you want to enjoy all the benefits, you must be able to choose the finest accounting software that is suited to your small business.
In choosing an accounting software, you need to consider the number of your employees. You can find accounting software that is suited for small business with less than 25 employees. Other software is suited for large businesses with bigger numbers of employees.
Software that is suited for small businesses helps the business owner analyze financial data, customize reports like transaction history, profit & loss, check details, reconciliation details, and many more. By simply looking at the various reports, you can already determine your business status. Some software also offers built-in features like forecasting tools. These tools can be used to manage business risks and control cost of operation.
If you're running a small business, now is time to purchase accounting software. By doing so, you can secure your business's future and you can be certain that all your financial tasks are handled effectively.
So, what accounting software does the Bean Counters Bookkeeping recommend? QuickBooks. In fact, we offer training to those new to QuickBooks or confused with how to best use it. Need training? Let's get on a call and chat.