While the deadline for filing your tax returns is still months away, it is a great time to prepare for filing your taxes and Daniel Kehrer has some recommendations and warnings that he shares on AZCentral. Some of Daniel’s recommendations are:
Hire family members to save taxes. Hiring a family member to work for your business can create tax savings for you. In effect, you shift business income to your relative. Your business can take a deduction for reasonable compensation paid to an employee, which in turn reduces the amount of taxable business income that flows through to you. Be aware, though, that the IRS can question compensation paid to a family member if the amount doesn’t seem reasonable, considering the services performed. Also, when hiring a family member who’s a minor, be sure that your business complies with child labor laws.
As is the case with wages paid to all employees, wages paid to family members are subject to withholding of federal income and employment taxes, as well as state taxes. But if your business is a sole proprietorship and you hire your child who is under age 18, the wages that you pay your child won’t be subject to FICA taxes.
Set up a self-employed pension plan. The ability to set up a generous, tax-advantaged retirement plan is one major benefit of being self-employed. Possibilities include: Keogh plans; Simplified Employee Pension (SEP); SIMPLE IRA; SIMPLE 401k or an Individual (solo) 401k.
Enjoy all your business deductions. You can deduct a wide range of business expenses, including rent or home office expenses, and the cost of office equipment, computers, cell phones, furniture, supplies and utilities. To be deductible, business expenses must be both ordinary (common and accepted in your trade or business) and necessary (appropriate and helpful for your trade or business). If expenses are part-business and part-personal, you can still deduct the business portion. You can also deduct the business expenses associated with your vehicle, using either the standard mileage allowance or your actual business-related vehicle expenses to calculate your deduction.
Read the full story at 6 tax tips and traps for the self-employed