Being able to work for yourself is something that many have wanted for years. The corporate lifestyle has fallen out of popularity very quickly because of the freedom aspect alone. However, self-employment may come with a few luxuries, but it’s still a responsibility and obligation all the same. In fact, there are many obligations for people who work for themselves. One of them includes dealing with self-employment tax. In this post, we’ll be covering what people can do to reduce their self-employment tax.
What is Self-employment Tax?
Self-employment tax is consisted of social security and Medicare payments for people who prefer to work for themselves. This sounds very similar to the taxes employers take from their employees. However, what sets them apart is that self-workers have to finance these taxes by themselves. For those who are looking to branch off and work for themselves, the rate of this tax is 15.3 percent.
Pay More on Your Business Expenses
Now that you know what you can expect to pay, let’s get into what you can do to reduce the cost. You can start by paying more on your business expenses. A business may contribute to society in its own way, but it still has its own expenses to take care of. Paying employees, financing utilities, funding your insurance policies, and investing into business technology are all examples of business expenses. Showing that you devoting a good amount of your money toward your business is a great way to reduce how much you have to pay on taxes.
One expense that’ll help lower what you need to pay is a fleet. Fleets are vehicles that belong to a company for various purposes. There’s more to investing into a fleet than just the vehicles themselves. You also have to fund the drivers as well the proper fleet technology, like ELDs and GPS tracking systems. GPS systems, in particular, are especially important as they’re needed to keep track of the vehicles themselves. Tracking purposes aside, GPS tracking also allows both fleet managers and business owners alike to come up with easier solutions and solve challenges without having to reduce efficiency.
Try Converting to an S-Corporation
An S-corporation is a type of business structure that a person can choose to be. It’s one of the necessary steps everyone has to take when opening their own business. But how does it impact taxes? Well, for starters, an S-corporation is a type of corporation, which is its own separate legal entity. Self-employment tax is taken from any earned income. So, how does being an S-corporation solve this issue? When consumers do business, they’re funding the corporation itself and not the owner directly. Because of this, this isn’t counted toward your earned income. If you are thinking about how to have more money in retirement there are benefits with converting to an S-corp that can help facilitate that.
Try Increasing Your Taxes Through Losses
There may be a time where you need to increase how much you pay in self-employment tax. You want to do this, so you can still be eligible for retirement and social security benefits. Through loss, which is when you don’t make enough of a profit as it all goes towards expenses, you can opt for increasing what you pay.