If you are self-employed, you still have to pay Social Security and Medicare tax through self-employment tax. In principle, you can deduct up to 50 per cent of your self-employment tax through adjusted gross income. Learn to maximise deductions for self-employment tax.
- Skill level:
- Moderately Challenging
Keep careful records of your expenses. You can deduct the money you spend on buying a computer or office furniture. Write down the expenses even when you pay cash. This will help you in the case you are audited by the IRS. Keep all receipts, and categorise them according to month and year.
Deduct expenses on cell phone or land line used for business purposes.
Consider incorporating your company if you employ people or do business with many vendors. This will reduce your legal and financial liability.
Contribute to a tax-deferred retirement plan. This will reduce the adjusted gross income, and accordingly, your tax.
Pay your children, spouse, friends or relatives for their help. This will reduce your family tax liability by shifting your income to, for instance, your child, who is at lower income bracket than you are.
Increase your expenses before December 31 to bring your income down to a lower tax bracket.
Keep track of the number of miles driven for business use. You can deduct business mileage expenses. In 2010, the standard mileage deduction is 50 cents per mile. Examples of business mileage deduction include driving to meet clients, driving to banks to make business transactions, and driving to post office to send business mails.