There are many benefits of being self-employed, but sometimes it can feel as though there are just as many hindrances. Many owners consider staying abreast of tax laws and changes tedious and frustrating, so partnering with an expert is generally in your best interest. If you’re looking for some positives, consider these deductions to help make your tax bill a little lighter.
- Qualified Business Income: Out of the 2017 Tax Cuts and Jobs Act was born the qualified business income deduction or QBI. This tax break allows owners of select businesses, like S corps, partnerships, and sole proprietorships, to deduct up to 20% of their business’s yearly income on their personal tax return. However, to be eligible, an individual must make $170,050 or less, and joint filers must make less than $340,100 combined.
- Self Employment Tax: Medicare and Social Security taxes that self-employed individuals make are deductible as a self-employment tax. Unlike income tax, self-employment tax rates are 15.3% of net earnings (12.4% Social Security tax on the first $147,000 plus 2.9% for Medicare on the first $200,000 plus 3.8% on all self-employment income above $200,000). You can deduct half of this on your income taxes on your Form 1040 when tax time rolls around.
- Continuing Education: You’ve got to be sharp to run a business, and luckily, you can catch a tax break for investing in yourself. Self-employed individuals can deduct qualifying work-related education from their tax bill. The central qualifier states that expenses must maintain or improve the skills needed for your present work, such as classes, tuition, and supplies.
- Retirement Savings: If you’re invested in a solo 401(k), then you may have a retirement-related tax deduction option. Contributions to a solo 401(k) or one-participant 401(k) can be tax-deductible. In 2022, the deductible sum is $61,000 ($20,500 as an employee + $40,500 as an employer) along with a $6,500 catch-up contribution if you’re over age 50. As the employer, you can make an additional profit-sharing contribution of up to 25% of your compensation or net self-employment income (your net profit minus half your self-employment tax and the plan contributions you made for yourself). The limit on compensation that can be used for your contribution is $290,000 in 2021 and $305,000 in 2022.
Running a business is hard enough, so why carry the burden of knowing all the tax rules and changes? As financial professionals, we’re here to help you navigate the changing laws related to your business. Contact us today at (540) 720-5656.
Amy Anderson joined the ILG Financial team in 2023 as the client relations coordinator. Her responsibilities include scheduling of appointments, annual check-up notifications, and annuity and required minimum distribution assistance. She is a graduate of Harding University with a degree in Computer Information Systems. Amy and her husband have two children and she enjoys reading, crocheting, music and spending time with her family.
Chase Lopez joined the ILG Financial team in 2020 as an advisor. Chase is a 2016 James Madison University graduate with a degree in management. Chase has been trained under the tutelage of Dave Lopez, who is not only the founder and managing member of ILG Financial, but also is Chase’s uncle and godfather. He also enjoys working alongside his cousin, Megan, who is Dave’s daughter. Chase, as a fiduciary, believes in putting his clients interests first, and building out plans for his clients where they can have a happy and fruitful retirement. He married his beautiful wife in February 2022 and both use most of their free time chasing around their little pup, Aurora.
Jessica Carson joined the ILG Financial team in 2018 as an agent. Jessica and her husband have four children, two dogs, 3 barn cats, 5 chickens, and three parakeets. She indeed loves her children and pets! When not at work, Jessica enjoys playing the piano and cello as well as traveling and spending time outside with her family, hiking, fishing, and boating.
Terri Center joined the ILG Financial team in 2019 as client services manager. She handles client records, application processing, and gathering information to provide a professional and friendly experience with all of our clients. Terri is a graduate of Oakland University. She is married and has two children. She enjoys hiking, family time, and puzzle challenging video games. She also likes to share her creativity in her canvas paintings and sewing projects.
Megan Jones joined the ILG Financial team in 2020 as marketing director. Megan and her husband live in Fredericksburg, VA with their German Short Haired Pointer, Gus. Megan is a graduate of Longwood University and holds a degree in communications. Megan is the oldest of Dave Lopez’s three children and not only enjoys working alongside her father, but also with her cousin, Chase, who joined the ILG Financial team in 2020 as an advisor. When not at work, Megan enjoys sitting on the back porch with family and friends enjoying food and music.