Self-employment allows you to be your boss. When you are self-employed, you can come and go as you please. It also means you get to establish a lifetime bond with your accountant.

Because you employ yourself, you'll have to pay your own FICA taxes and handle your own retirement plan, among others. To help ensure you get these things right, here are some planning tips for you to remember:

Tip #1: Learn Everything You Can About Self-Employment Tax and How It Is Calculated

When you are self-employed, you must be ready to pay self-employment tax. You must understand the self-employment tax you will have to pay and the employer contributions you are not making.

Various expenses are included in your self-employment tax, such as your expenses for running your business, salaries for any employees, as well as any payments to your retirement plan.

Self-employment tax is calculated at 12.4% of net earnings. The tax rate is also applied to income above $400. This means that a self-employed person will have to make quarterly estimated tax payments.

Tip #2: Pay Your Taxes on Time to Avoid Penalties

If you forget to make your quarterly calculations, you must pay interest and penalties charged by the IRS for late-payments and past dues. To avoid this, set up your estimated taxes with every paycheck.

Tip #3: Employ Members of the Family to Save Taxes

If you employ family members, they'll receive a standard deduction. This means that your family members will pay 12.4% Social Security tax only on the first $8000 of their income.

However, if you were to give your family members additional income, they would pay a social security tax of 12.4% on their total earnings. This is how you can save taxes.

Tip #4: Create an Employer-Sponsored Retirement Plan Both for Tax and Non-Tax Reasons

As you are self-employed, you are not part of a company-sponsored retirement plan, such as a 401(k). You can either set up a 401(k) plan with an outside bank or trust company, or you can set up your own.

For some, this may seem like a luxury, but if you wish to continue working after you reach the retirement age and want to pass your business to your children, then this can be the way to go.

Tip #5: Take Advantage of All Possible Business Deductions

You are self-employed, which means that you can deduct all of your business expenses. This includes any expenses related to travel and entertainment, as well as office expenses like keyboards and mice, printers, and cell phones.

If you are going to take advantage of these deductions, you'll need to be organized. You'll have to keep track of your records, from your receipts to your financial transactions. You'll also need to know the expenses that can't be deducted and when you should deduct them.

Conclusion

The best thing about being self-employed is that you can be your own boss, and you can work from wherever you are at the moment. However, you should be prepared to pay self-employment taxes and be ready to foot the bill for your retirement plan. It is also necessary that you understand the tax deductions that you can avail of and that you create a proper record system to help you keep track of all your expenses and financial transactions. It’s a good idea to seek the help of a seasoned accountant in Denver who understands all the complexities involved in paying taxes as someone self-employed. 

Tottax is one of the most reputable accounting firms in Denver that offers you expert services, including accounting, tax planning, tax filing, and tailored business consulting. Contact us today so we can discuss how we can help you!