How The Self-Employed Individuals Can Reduce Tax Liability
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
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.
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Tax Planning Services - Insights On Hiring One
Many companies these days take advantage of the convenience offered by tax
planning services. This is especially true to those who do not have the time to
keep their records detailed and or learn the intricacies of a personal financial
software packages or tax preparation programs.
Perhaps, you have heard of them but you are hesitant about giving them a try.
Why don't you take the time to read a few of their benefits? Here they are. Firstly,
they can save you from being unprepared for your due dates. Secondly, they
remove the burden of computation and recording off your shoulders. Thirdly,
they can help in the expansion of your profits as your liabilities are kept to a
minimum. Tax planning services can do the latter by giving pieces of advice on
your business structure and tracking varied details which may qualify as
Are you now ready to hire any of these specialists? Generally, the easiest way to
hunt for these service providers is through the internet. You can check online
directories or simply launch a relevant search in Google. However, there are
important things you must keep in mind before pushing through with the hiring
process. They are the following.
Take Into Account The Size Of Your Business - Why hire a huge firm for a small
company with just four employees? The size of the consulting firm you opt to hire
will definitely depend on the size of your company. If you have a small business,
go to firms that cater to such sector. It would also be wise for you to be clear with
the length of time that you will need its services. Is it just for a short term?
Know The Background Of The Firm - Is it famed for great service? Do their
professionals have full knowledge of the best tax planning strategies? You might
be attracted to hire a firm that promises miraculous outputs. Think again. Your
aim must be to look for a team that can do the computations right on your behalf
in a legal way. Moreover, know its expertise. For all you know, you have hired one
that specializes in personal income taxes when you need a business tax service.
Gather References - Ask for the list of people or business for which the
consultants of the firm have previously worked. Is the feedback positive? If they
have a website, read through the comments of its clients. You may contact a
couple of them and ask whether the firm was able to provide for their needs.
Do An Interview - Firms that offer tax planning services employ consultants who
are well-versed about the industry. Take time to have an interaction with the
consultants and see how they treat their clients. Ask about their availability. Are
they going to stay with you all throughout the process? Show them your business
structure and request for a proposal on how they can help you cut your tax
payable and save more income for your company since these are the reasons why
you are consulting them.
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Tax Planning Strategies Small Business Owners Must Know
It is a fact that it takes years for most small businesses to earn the profit they
need. Apart from the possible cut-throat competition in the respective industries
to which they belong, they could be paying for numerous obligations. One of
these is taxes. If you are an entrepreneur looking for a relief regarding this
matter, the tax planning strategies contained in this article are just right for you to
Do A Thorough Research - Taxes payment dues imposed by the government for
different reasons. Compliance to their payments must be taken seriously as grave
penalties maybe charged against you for inappropriate filings or missed deadlines.
In connection to this you must be well-versed about the differences between and
among sales tax, payroll tax and income tax. Ignorance of how they are properly
computed will not be honoured by the government.
Hire An Outside Consultant - This procedure includes a number of details which
can cause headache to anyone who are not used to understanding them. In fact,
misinterpretation of data and miscalculations on your part can cause you to
spend more than what you ought to pay. What's worse, your business license
could be cancelled if the government suspects you falsifying your records. To
avoid any of these, hire a consultant who can walk you through the right path of
computations. This one of the best tax planning tips you must observe.
Track Possible Deductions - Do you know other deductions which may be taken
from your gross income? If not, research. Deductions in the form of automobile,
entertainment, home office and travel expenses may be helpful on your part.
Know Your Business Classification - You read that right. Some entrepreneurs do
not even know under which category their business should belong. If your
business is classified correctly, your dues maybe reduced. Why? Tax rates vary
from one business to another. Know the liabilities due your business.
Be Mindful Of Your Due Dates - Due dates are important for all tax planning
strategies. Due dates are fixed. However, there are certain circumstances where
extension of the due dates may be requested. Do not get your hopes too high
though because extensions are not always approved. Keen about getting delays?
Try purchasing real estate and pieces of equipment before the new year comes. It
can give you some more time to prepare. As you do that, observe advance
collection of payments and sale of assets.
Discuss Potential Monthly Payments - Sometimes paying a part of your total dues
on a monthly basis helps remove the pressure off your shoulder. This is one of the
tax planning strategies that most tax payers fail to give a second look. For your
information, there are varied payment plans which you can tap in accordance to
your needs and eligibility. On the other hand, these plans come with added
interest rates. Study first whether your earnings can afford the monthly interest
rates or not. You would not want to have a bigger debt right? After all, reducing
your payable is what you need.
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