How Can Self-Employed Persons Reduce the Amount of Tax They Pay?
Posted on: 12 October 2016
As a self-employed person, you'll need to spend time making sure that you save enough of your income to pay the taxman each year. Luckily enough, there are also several ways to legally reduce the amount of tax that you pay. Here are just four ways that self-employed people can reduce their tax bills.
Contribute to Your Retirement Fund
A superannuation is a way to save money towards your retirement. As a self-employed person, you will need to contribute to it yourself instead of having an employer fill it up. Luckily, adding to your super also comes with tax advantages. You may be able to claim a significant tax deduction based on the amount that you save each year – your upper limit will be determined according to your age. Just remember to make those contributions before the tax year ends on June 30th if you want to claim them as tax deductions.
Keep Track of All Expenses
As a self-employed person, you will be able to claim deductions for costs that are necessary for your business. Most people know about claiming for expenses associated with tools and travel, but you can also claim back some of your utility costs if you run your business from home. The best thing to do is keep track of all receipts, then ask yourself whether the cost came about as a result of your work.
Deduct Health Insurance Costs
Health insurance isn't really a business expense like the other costs listed above, but it is still possible for self-employed taxpayers to deduct the cost of health insurance for both themselves and their families. Unfortunately, not all self-employed persons will be able to take advantage; for example, participating in an employer-subsidized plan from your partner's employer will normally preclude you. However, health insurance costs can really add up over the year, so it's a good idea to speak to a registered tax accountant to see if you can benefit.
Incorporate Your Business
Some self-employed people can benefit hugely from incorporating their business as an 'S Corp'. This comes with a number of advantages, but one of the best is being able to take a slice of your annual earnings as a dividend instead of as traditional income, thereby reducing the amount of tax that you need to pay on those earnings. There are some drawbacks to incorporation, however, including a more complex tax return process, so it's best to talk through your specific situation with a professional about tax returns before committing to this path.
Share