Common Tax Issues for the Self Employed

By Angela Gymmy

It is possible that you would be paying a lot less in IRS taxes than you have in the past if you just practice planning for your taxes a little better. Every year, people in similar tax conditions pay different tax amounts because some tax payers capitalize more on tax provisions to pay the least taxes possible. You can also get smart with your IRS taxes and plan for a lower tax payment in the coming year! With some more accurate planning, you can save on lots of taxes into future years.

Tax Process For you to operate at an optimal tax position, you will need to analyze all factors that affect your income and tax liability. The process of taxation is done as follows - The Adjustable Gross income (AGI) is arrived at by removing the eligible adjustments from the schedule of all your incomes. The standard or itemized deductions are then reduced from the AGI. A further exemption is made for every eligible dependent to apply to the taxable income. Your tax rate is then applied to this taxable income to get to your tax obligation. Therefore, simply put, to reduce on your tax burden, you need to reduce your taxable income to the least possible amount by capitalizing on all possible adjustments and deductions.

The exclusion is not limited to family members. It applies to all gifts. In addition, married individuals can agree to gift splitting. This allows them to jointly give twice the annual exclusion to one person.

For businesses, there are various ways that you can lower the income to be considered for tax purposes. You can contribute to qualifying charities or make all your expenses within this year (such as purchasing office equipment or stocking office supplies). You can also seek to defer any income receipts (for example, by deferring invoices of some of the payments due in the late fourth quarter).

In addition, if the individual is married and the spouse agrees to gift splitting, they can each report gifts of $12,500 that both fall under the annual exclusion. Your tax courses teach you how gift tax returns are used to report gift splitting.

Physically separating the area, such as using a specific room, is best for this. Also, if a personal vehicle is used for the business, the taxpayer must be sure to keep mileage records for the business use. Only the business miles can be deducted.

Capitalize on Credits Credits work to reduce the tax owed. Therefore, maximizing on all available credits will impact directly on the taxes to be paid to Uncle Sam. Some of the credits that you can qualify for include investing in qualifying retirement savings plans, enrolling in college, dependent child-care credit that requires hiring a child caretaker while parents or parent (if single parent) is working or in school, and adopting a child. Other less-utilized credits include purchasing energy-saving equipment for your home and also buying a hybrid car.

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