Tax Tips for the Self Employed: US, UK, CA, AU

So, you have taken the plunge and started your own business, or you are doing some contracting or consulting to tide you over while looking for your next job. Don't get caught hit by the very different tax rules for the self-employed. Taxation for the self-employed can be very complicated.  Carefully read the IRS self-employed web pages. There may be special rates and rules that apply, for example, if you do farm work, fishing or work for religious organizations.

As an employed person, your employer paid half of your social security and medicare taxes. As a self-employed person you are obligated to pay the full amount which currently is 12.4% for social security and 2.9% for medicare.

You may receive 1099 forms instead of W2 at the end of the tax year. Any client that pays you more than $600 in the year is obligated to send you a 1099. Regardless keep your own detailed records.

You will need to file an estimated tax return every quarter along with a tax payment. Put aside about one third of every net receipt to cover your taxes. It will hurt but not as much if you have to write a large check in April.

One plus for a self employed person -- there may be many tax deductions available to you. Again check the IRS web pages and a qualified tax account.  Here are 8 tax deductions you can make as self employed person:

1. Unpaid invoices can be written off as bad debts if you use accrual accounting but not if you use cash accounting. Check IRS Publication 535 for the latest rules.
2. You can write off research into industry areas in which you do business. This may include conferences, books, seminars etc. Again keep records and receipts.
3. Job hunting expenses including online job board fees, job bidding site fees etc.
4. Paypal and credit card fees for receiving payments.
5. You can deduct fees for using another freelancer for specialist or extra work. Be careful here to ensure the work is purely contract work and not be considered employment. Make sure you collect invoices and again the key is detailed record keeping.
6. You can deduct your home office expense including utilities, mortgage interest and so forth. You will need IRS Form 8829 to document your home office use.
7. Cell phone and Skype expenses are deductible including a second, but not first, telephone line.
8. Professional fees for your lawyer and account are deductible. Again keep invoices and receipts.

Laws and tax rules, and rulings on tax law, change frequently. Use the above as guidelines only and consult the IRS and your professional tax advisor for the latest information.

Good luck.

No Job Resources - No Job Advice and Help