Don't Pay Higher Tax Because You Are Self-Employed!

Everybody who works for themselves is bothered by the expensive self employment (SE) Tax. There is a real reason to be bothered by this; SE Tax is double the amount of the federal payroll tax. Compared to a worker who pays 7.65% federal tax, a person who is self employed must pay an SE Tax of 15.3%. The SE Tax can be reduced by using Schedule C. Three Tax Tips to decrease the tax are following. The positive and negative of this schedule is also discussed in the following statements.

1. Home office deduction: Income tax is reduced in Schedule A deduction, but in Schedule C deduction, in addition to income tax, SE tax is also reduced. There are some misunderstandings about home office deduction. It is not true that you will invite an audit if you mention home office deduction, but on the other hand, if you do not include the deduction you may have to end up paying high tax. Also some believe that same tax amount have to be paid if they include property tax and mortgage interest on Schedule A or home office deduction on Schedule C, which is not the fact.

2. Deduct tax preparation fees: Put the money you spent to have your taxes prepared on Schedule C and decrease the income tax as well as the SE tax. You can also put the money you spent to have your taxes prepared on Schedule A but you won't receive as much money back. So always choose to pay less taxes.

Using Schedule A, what you deduct is restricted to 2%, with the implication that the taxed party must make adjustments in deduction miscellany to total 2% of adjusted gross income. This restriction of deductible amounts listed as miscellaneous is a disadvantage of using this tax schedule.

There are several restrictions to Schedule C also, such as the only Tax preparation fees you can claim is the money paid for employing an accountant to work in your business. The accountant's salary has to be separated into business forms (such as Schedule C, Schedule SE, Forms 8829 and 4562) as well as the non-business forms (such as Form 1040 and Schedule A).

Remember to include the work that was done by your accountant, such as processing payroll, preparing payroll tax returns, keeping track of the books, and software consulting.

3. Tax Preparation software program: There are many calculations to be done while filing Schedule C. Though the tax appears to be 15.3% it is not. First of all the tax is not paid on 100% of the profit but it is paid only on 92.35% , secondly fill in form 1040 and take a 50% deduction on SE Tax. And there is also some calculations on the Medicare portion and the social security portion of the SE Tax. All this seems to be a little complicated, so it is always good to use a software program which can be purchased paying a few dollars.

Learn How to claim income tax deductible mileage and other hidden Tax Deductions and Credits that can save you lots of cash. Ron Finkelstein is NOT a Tax Attorney or an accountant. He is merely a small business owner who has paid a lot of money over the years to learn a whole lot about Taxes and Time Management. Make sure you understand the Top 10 Missed Deductions

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