One reason that many people don’t want a home business or to work on a contract/freelance basis is that they don’t want to pay taxes. Well I hate to tell you this, but you already pay taxes. Sure it may be a little bit easier to have your boss deduct it from your pay, but did you know that by doing so, it could be costing more money?
Before we go on, let me confess that I’m NOT a tax expert, so please consult with a tax professional before doing your home business or freelance taxes. With that said, here’s some information that can show you the benefits of working for yourself.
As an employee, your boss deducts your taxes every month from your gross pay. If you make $1000 and are in the 25% tax bracket, thats $250 a month, $3000 a year. But if you work for yourself, you pay taxes quarterly on the NET income you earn, not the gross. Your net is your gross income minus your business-related expenses such as home office, Internet access, staples, etc. Many of these items you pay for anyway such as Internet access and utilitites. If you earn $1000 a month, and your business expenses are $200, you pay your tax on $800 ($1000- $200). In the 25% tax bracket that is $200 a month or $2400 per year. That’s a tax savings of $600 a year!
There are many deductions available to you as a self-employed or contract worker such as:
Portion of utilities used in home office
Portion of Internet access fees
Phone services (beyond main line)
Office supplies and equipment
Educational materials for work purpose
Work related travel
Licenses, permits, etc.
Again, I’m not a tax expert so you’ll want to get the advice from someone who is. However, I do know that there are many tax advantages to working for yourself. You can learn more by visiting the IRS Home Office Deduction resources