October 24, 2011
Self Employment tax saving
Self employment tax saving is a very important feature for self employed people. All the self-employed people are quite in a thought process with the high self-employment Tax. SE Tax is twice as the federal payroll tax. Where a employee pays in 7.65% federal tax, a self employer has to pay 15.3% of SE tax. There are some ways in which you can save SE tax
1. Use tax preparation fees deduction: You can mention the tax preparation fees on Schedule C and reduce both income tax and SE tax. You can also show the tax preparation fees on Schedule A but there will be less benefit. Here's something you need to know about Schedule A . In Schdule A, the deductions are subject to 2% limit which means that the tax payee has to adjust his miscellaneous deductions to a amount equivalent to 2% of the Adjusted Gross Income. So whatever deductions you mention under “Certain Miscellaneous Deductions” there is a certain limit. There are also 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.
2. Claim home office deduction: A very important thing is that Schedule A deduction reduces income tax where as Schedule C deduction reduces income tax as well as it helps in Self Employment tax saving.
2. Claim home office deduction: A very important thing is that Schedule A deduction reduces income tax where as Schedule C deduction reduces income tax as well as it helps in Self Employment tax saving.
3. In “Certain Miscellaneous Deductions”, don’t forget to include the work like bookkeeping, software consulting, paycheck processing or payroll tax returns done by your accountant.
4. Tax Preparation software program: There are many calculations to be done while filing Schedule C. Though the tax appears to be 15.3% it is not. An important thing is that the tax is not paid on 100% of the profit but it is paid only on 92.35% , then you can fill in form 1040 and take a 50% deduction on Self employment Tax. There is also some calculation on the Medicare portion and the social security portion of the SE Tax.
4. Tax Preparation software program: There are many calculations to be done while filing Schedule C. Though the tax appears to be 15.3% it is not. An important thing is that the tax is not paid on 100% of the profit but it is paid only on 92.35% , then you can fill in form 1040 and take a 50% deduction on Self employment Tax. There is also some calculation on the Medicare portion and the social security portion of the SE Tax.
To save good on your taxes,like some complicated ones like Self employment tax saving, a good Tax return preparation software like Turbotax.
