Not many self-employed individuals know that they can reduce tax liability in different ways. They often think that seeking to lower their dues would lead them to illegal activities. If you are one of them, here is good news for you. You can do so through careful study of everything you have at hand and definite planning of the steps you ought to make. Read the following ideas which can get you started on this.
Perhaps, having a better understanding of who the self-employed are would be the best starting point. A self-employed individual is someone who owns or co-owns a business. Apart from that, a self-employed individual could be engaging in trade as an independent contractor. Since a self-employed individual does not work for a company, he is responsible for his own tax planning strategy.
In connection to that, this person must know clearly the exact amount he needs to pay for a self-employment tax. This is an additional duty on top of the regular tax obligations he must pay. This is why rooting for means to lessen the amount it dictates would be a great benefit. The first procedure he can take is to shift the total income he receives to another person. This can be done legally if he employs any family member as part of the business he handles.
How does this work? He can transfer a small portion of his income to the family member employed in his business so the amount of the tax he needs to pay will be smaller. This, of course, is best observed with the help of an accountant so that penalties must be avoided. He must ensure that the amount of income to be transferred to his employed family member is matched with the position or work the latter does for the business; nothing more nothing less.
A self-employed individual can also reduce tax liability through the details of a health insurance plan. Obviously, he would not be receiving benefits from an employer and so he will be responsible for insuring his health needs. Health insurance premiums are legal deductibles. However, health insurance deductibles must not cost more than the income his business makes. Taking advantage of a retirement plan can also help a self-employed individual prevent high tax dues. This is quite complicated and so professional help must be consulted.
The ideas mentioned above are clear indications that performance of illegal practices is not needed just to lower tax payables. Any self-employed individual aiming to reduce tax liability must also be aware of the things which may be considered evasion. One clear example of this is failure to declare all income he receives as the duties would not be calculated correctly with the figures provided. There are times when one declares all the income he receives but fails to show proper allocation of income. This is a procedure that is illicit too. A consultation with a professional can ensure prevention of these practices and substantial penalties from the authorities.