{"id":41406,"date":"2022-01-04T14:59:47","date_gmt":"2022-01-04T19:59:47","guid":{"rendered":"https:\/\/ilgfinancial.com\/staging\/2370\/?p=41406"},"modified":"2022-05-26T22:01:24","modified_gmt":"2022-05-27T02:01:24","slug":"self-employed-tax-benefits-and-deductions","status":"publish","type":"post","link":"https:\/\/ilgfinancial.com\/staging\/2370\/self-employed-tax-benefits-and-deductions\/","title":{"rendered":"Self-Employed Tax Benefits and Deductions"},"content":{"rendered":"![\"\"](\"https:\/\/ilgfinancial.com\/staging\/2370\/wp-content\/uploads\/2021\/01\/open-for-business-2021-09-04-09-24-10-utc.jpg\")
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\u2019re looking for some positives, consider these deductions to help make your tax bill a little lighter.<\/p>\n
\n- Qualified Business Income:<\/strong> Out of the 2017 Tax Cuts and Jobs Act was born the quali\ufb01ed 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\u2019s yearly income on their personal tax return. However, to be eligible, an individual must make $170,050 or less, and joint \ufb01lers must make less than $340,100 combined.<\/li>\n
- Self Employment Tax:<\/strong> 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.<\/li>\n
- Continuing Education: <\/strong>You\u2019ve 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 quali\ufb01er states that expenses must maintain or improve the skills needed for your present work, such as classes, tuition, and supplies.<\/li>\n
- Retirement Savings: <\/strong>If you\u2019re 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\u2019re 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.<\/li>\n<\/ol>\n
Running a business is hard enough, so why carry the burden of knowing all the tax rules and changes? As financial professionals, we\u2019re here to help you navigate the changing laws related to your business. Contact us today at (540) 720-5656<\/a>.<\/p>\n
\n