Have you been grinding for yourself in 2020? Working freelance jobs and other contracts can often make tax time unappealing for many. Between keeping a portion aside and figuring out what to write off, the task feels challenging.
Don’t worry though, because, with these self-employment tax tips, you’ll be conquering filing taxes like never before.
1. Understand What You Pay
Self-employed taxes are slightly different from your typical W2 taxes. For self-employment tax, you’re looking at paying around 15.3 percent in taxes. This is split between 12.4 for social security and then 2.9 percent for Medicare.
The social security tax will only apply to the first $137,700 that you made in 2020. After which it will go up. The Medicare tax does not change, no matter how much you made.
Do you want to ensure you’re ready for tax time? You can use these check stub templates for self-employed individuals.
2. Deduct Your Home Office
As a freelancer, you’re going to need a home office for work. This is great because you can then write off a portion of your mortgage or rent during tax time. Note that you can only write off a certain portion of your house, meaning that the entirety of your mortgage or rent is not a tax deduction.
This percentage must fall within 10% of the house. Anything over that and is not able to be written off. So, designate that area for business and start to go to work.
3. Continuing Education
When you’re self-employed, you’re also continuously learning on your own time rather than having someone guide you. Any expense you pay on furthering your education is a tax deduction. This includes classes, books, supplies, and even that laptop that you needed to watch the lectures.
This is thanks to the Lifetime Learning Credit that can be applied to any year. You only have a maximum of $2,000 per year.
4. Retirement Accounts
Since you are not having an employer pay into social security or other forms of an investment account, you should look into retirement accounts. This can be done through a solo 401(k).
A solo 401(k) is the same as a normal 401(k), but you are the one doing all the investing and work. The money is a pretax contribution, so once you go to take it out after retirement, it will be taxed. You can currently only contribute $58,000 for the 2021 tax year.
5. Phone and Internet Costs
If you’re truly from home and have a business phone and business internet, you can fully apply this deduction. In a time where phone and internet are a must-have for anyone that is self-employed, don’t feel like you should foot the bill for a requirement.
This means even if you feel like setting up either a phone line or an internet line, you can recover the costs at the end of the year.
Use These Self-Employment Tax Tips to Ensure a Safe Tax Bill
By using these self-employment tax tips, you’ll learn how to file taxes like a professional. There will be no questions about what is or what isn’t tax-deductible. Just stay on top of these expenses throughout the year and your 2021 tax year will be a piece of cake.
If you want to learn more about the tech world and how it is evolving, be sure to check out the rest of our blog. If you know someone that is self-employed, be sure to share this article with them to help them out.