If you’re going to use this strategy, it’s important to look ahead first. This will allow you to claim more deductions in the current tax year - essentially borrowing from next year’s write-offs. Here’s how it works: rather than waiting till January to pay your regularly scheduled bills, pay them in December instead.įor example, if your business rent is due January 5th, pay it December 30th. If you know you’re in for a painful tax bill, this strategy could help. That’s 11 extra months!ĭelaying your income by just a couple of days can give you lots of extra breathing room to plan for taxes. However, a payment you get on January 1st doesn’t have to be reported until April of the following year. Here’s why: A payment you receive on December 31st has to be reported on your tax return by the following April.
(Rideshare or delivery drivers, for example, are locked into a relatively inflexible payment schedule.) But for those of you who invoice clients, consider delaying your December invoicing until the New Year. This isn’t a feasible option for everyone. Tip #2: Consider deferring your business income When you’re ready to file, all you have to do is upload your 1099s, and we’ll handle the rest. The app will find and sort all of your business write-offs automatically. The Keeper app is specifically designed for gig and freelance workers. If you’re wondering where to start with this, you’ve come to the right place. 💻 Platform fees, from Shopify to Patreon.🔌 Computers and electronic accessories (chargers, adapter cables, etc.).💳 Bank and credit card fees on accounts you use for work.
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🧑💻 Software subscriptions (such as Office 365).🚗 Work-related parking fees and toll passes.Here are a few examples of business tax deductions you can take: More of your purchases count as business expenses than you might realize, and they could significantly lower your taxable income. In the frenzy to pull everything together before taxes are due, eligible write-offs tend to fall through the cracks.ĭo yourself a favor and start keeping up with your expenses now. Most write-offs are missed because people don’t keep track of what they buy for work. Here are the three best ways to avoid paying extra taxes on your 1099 income: Tip #1: Don’t miss your business write-offs Now for the fun part - lowering your tax bill! As I mentioned earlier, the only way to effectively reduce self-employment taxes is to lower your net income. The 3 best ways to lower self-employment tax
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If you’re interested in more details, check out our blog post on how to pay self-employment taxes step by step. We haven’t gotten into all the nitty-gritty here - like the forms that are involved in the filing process. You would divide that amount by four and make your quarterly tax payments on the following schedule: For example, let’s say you expect to owe $2,000 in taxes. You pay your quarterly taxes on the 15th day following the end of the quarter. These additional payments are referred to as “quarterly” or “estimated” tax payments. If you think you might owe more than $1,000 in federal income taxes, you should be making payments throughout the year - not just when you file your return. Your self-employment tax, on the other hand, can only be reduced through business write-offs and tax credits. Your income tax can be reduced through adjustments (like for self-employed health insurance), standard or itemized deductions, and tax credits. So what’s the difference? In short, your income tax is assessed on your total income for the year, whereas self-employment tax is assessed on your business income for the year.
Self-employed individuals have to pay both income tax and self-employment taxes. It seems like it should be an either or situation, right? Many freelancers are surprised to learn they have to pay multiple types of taxes on their return.
That’s your gross income minus your business write-offs. Luckily, only your net earnings are subject to self employment taxes.
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