Preparing and filing taxes can be cumbersome, time-consuming, and downright confusing. No one knows this more than self-employed individuals. But tax planning doesn't have to be taxing. Here are three tax strategies that'll save self-employed individuals both hours and dollars.
1. Fund a retirement account to lower your tax bill
Although self-employed individuals don't have the luxury of a built-in workplace 401(k), you have lots of other great opportunities to save for retirement on a tax-deferred basis while reducing your taxable income today. The simplest of these plans, and one that can you still open and fund before the April 15th tax-filing deadline, is the SEP IRA.
Every dollar you contribute to a SEP IRA reduces your business' taxable income. And the contribution limits on these plans are remarkably high. In fact, a SEP IRA can potentially save your business up to tens of thousands of dollars in taxes every year. The SEP IRA allows contributions up to 25% of compensation or $51,000, whichever is less. Keep in mind the maximum amount of compensation that can be used in determining your contribution is $255,000 for the 2013 tax year.
2. Take advantage of the simplified home-office deduction
If you "regularly and exclusively" conduct business in a space of your home, you're used to filing a lengthy form that requires you to enter a percentage of household expenses for mortgage interest, insurance, repairs, utilities, etc. Under the new simplified option for home office deduction, you now just deduct $5 per square foot of home office space. The limit is 300 square feet, for a $1,500 maximum tax deduction. This strategy alone can save you tons of time when preparing your taxes.
3. Prepare for the health insurance premium tax credit coming in 2014
In conjunction with Obamacare, individuals and families can soon take a new premium tax credit to help them afford health insurance coverage purchased through an insurance exchange. Starting in the 2014 tax year, you may be eligible to deduct premiums you pay for medical, dental, and qualifying long-term care insurance coverage for you, your spouse, and your dependents. Determine your eligibility and start planning for next year's tax credit. It's never too soon to figure out how to save money on next year's tax bill.
Save time and money this tax season
Taxes don't have to be taxing. Save time and give less money to Uncle Sam by implementing these tax strategies today.