Bust Self-Employment Taxes With Simple Deductions
24th February 2012 by Tax Man No CommentsEverybody who works for themselves is bothered by the expensive self-employment (SE) Tax. There is a real reason to be bothered by this; SE Tax is double the amount of the federal payroll tax. Compared to a worker who pays 7.65% federal tax, a person who is self-employed must pay an SE Tax of 15.3%. The SE Tax can be reduced by using Schedule C. Three Tax Tips to decrease the tax are following. The positive and negative of this schedule is also discussed in the following statements.
1. Deduct your Office at Home: Many people are under the misconception that by deducting a home office you are inviting the IRS into your world via an audit. These rumors are not true, as long as you actually have a home office. You can use these tax deductions on Schedule C, SE or A to reduce your taxes. There are people under the misconception that the tax bill will be the same if Schedule A shows the interest on the mortgage and property tax or if you use the home office deduction on schedule C, these are also rumors that simply are not true.
2. Tax preparation fees deduction: Tax preparation fees may be indicated on Schedule C and then income tax as also self-employment tax may be deducted thereon. Benefit earned will not be substantial in case tax preparation fees are indicated on Schedule A. Hence, you must always look to reduce your tax bill.
When itemizing deductions on Schedule A, miscellaneous deductions are limited to two percent of the Adjusted Gross Income for the taxpayer. Therefore any deductions listed under this heading must exceed a certain amount before any benefit is realized from the deduction.
There are some limitations in Schedule C also like the only Tax preparation fees you can mention is the fees you pay to your accountant for the business work he does. The accountant fees has to be divided into business forms (like Schedule C, Schedule SE, Form 8829 and Form 4562) and non-business forms (like Form 1040 and Schedule A).
You should not forget to include the work done by your accountant like bookkeeping, software consulting, processing of paychecks or payroll tax returns.
3. The software program for Tax Preparation: Before filing Schedule C, the calculations have to be completed. Actually the tax is not 15.3% as it appears. Firstly, the tax is paid only on 92.35% of the profit and not paid fully; secondly get a 50% tax deduction on SE Tax by filling the form 1040. Also do not forget to include the calculations on social security and Medicare portions of the SE Tax. To get the calculations done in an easy way, by spending few dollars, it is good to purchase a software program.
Ron Finkelstein is NOT a tax lawyer or aCPA. He is just a small business owner who has paid a lot of cash through the years to get familiar with tax tips like commute tax deduction and professional training tax deduction
