As the world gets increasingly digitalized, more and more people turn towards self-employment. People seem to prefer self-employment over being employed by others because it gives them the power and freedom to set their own working hours. However, when it comes to the tax obligations of self-employed people, they aren’t much different than those of employees. Self-employed people are required to pay self-employment tax in addition to income tax. These self-employment taxes are used to fund social security and other programs. Dorothy Lawrence, the CEO of the Dorothy Butler Law Firm, believes that these tax obligations can be daunting, but there are ways in which you can reduce them.
Dorothy Lawrence specializes in many areas of the law, including but not limited to bankruptcy law, estate planning, business and real estate law, and family and divorce law. Dorothy believes that the best way to reduce your self-employment taxes is to ensure you have the right tax expert on your side. A professional tax preparer is one who is familiar with all sorts of tax deductions and credits and can handle your situation. Dorothy says that many self-employed people may be eligible to write off a home office expense or take mileage deductions – but don’t know how to properly take these credits themselves.
The Dorothy Butler Law Firm offers tax preparation services to both employed and self-employed clients all across the U.S. This past year, Dorothy’s firm, @dorothybutlerlawfirm, served clients in 38 states and provided them all with expert assistance in preparing their tax returns. Dorothy also has a small business attorney on staff who can assist with any business needs in regards to formations/setups, within the State of Texas.
To all the self-employed individuals out there, Dorothy suggests that they track each and every expense. Just because you are operating from home doesn’t make your business any less of a business. Dorothy says you should keep a record of all your business expenses even if you aren’t sure whether they are deductible expenses or not. That’s why you must have a competent tax preparer like Dorothy on your side who will assist you with figuring out which items are deductible and which aren’t. She always recommends tracking expenses by category, so it’s easy to break them down at the end of the year.
According to Dorothy, one of the best and most efficient ways to legally reduce self-employment taxes is to increase your business’ expenses. Dorothy always says YES to clients contacting her and asking her whether they should spend money on their business. Not only is the investment itself good for your business, it actually reduces your self-employment taxes.
Dorothy believes that converting to an S-corp in some cases can also help you reduce self-employment taxes. However, where many people open themselves up to an audit is, thinking they can pay ALL of their earnings as flow-through profit. This isn’t how the IRS rules work. If your earnings from an S-Corp are self-employment earnings, she says, you must pay yourself some portion of earnings as wages. If you pay all of your earnings as flow-through profit and the IRS audits your S-Corp, you will face penalties. That’s why it is very important to consult with a tax professional about effective and successful audits that are in your best interests.
