Welcome to a new year filled with possibilities! As we step into 2024, it’s time to equip ourselves with the knowledge and strategies needed to conquer the upcoming tax season. In this comprehensive guide, tailored for both individuals and small business owners, we’ll delve into key aspects to ensure a smooth and successful filing for the 2023 tax year.
Gathering Essential Tax Information for 2023 Filing As the tax season kicks in, the first crucial step is gathering essential documents. Reviewing W-2s, 1099s, K-1s, and other relevant paperwork is paramount. Be proactive in ensuring accuracy, and don’t hesitate to communicate with issuers for any necessary corrections. Accuracy now sets the foundation for a stress-free filing later.
Organizing Records Effectively for a Seamless Filing Process To ensure a seamless filing process, it’s essential to organize records effectively. Consider transitioning important information from the previous year and embrace digital record-keeping tools. By maintaining order throughout the year, you’ll transform your tax season experience into a smoother, more efficient process.
Setting an April 15th Reminder – Your Tax Milestone April 15th isn’t just a date; it’s a milestone in your financial calendar. Create personalized reminders for essential tax tasks, including filing your 2023 income tax return, addressing extensions, and other critical deadlines. By staying ahead, you’ll navigate tax season with ease and avoid any last-minute pressures.
Understanding Business Return Deadlines for a Smooth Process For small business owners, understanding business return deadlines is key. Mark your calendar for partnership and S corporation deadlines on March 15th, and the calendar-year C corporation deadline on April 15th. Timely submissions ensure a smooth tax season for your business, allowing you to focus on what you do best.
Reviewing Your Child’s Income – A Family Affair Make tax season a family affair by reviewing your child’s income. Evaluate whether your child needs to file a 2023 income tax return, considering income thresholds and the associated tax implications. Taking a proactive approach to your family’s financial situation ensures a well-rounded and informed approach to tax season.
Contributing to Your IRA and HSA – Maximizing Financial Opportunities Seize the opportunity to maximize your financial opportunities by contributing to your IRA and HSA before the April 15th deadline. Understand contribution limits, benefits, and align these contributions with your long-term financial goals. It’s a small step that can have a significant impact on your financial well-being.
Calculating Estimated Tax for Extensions – Planning for Flexibility Consider the option of filing an extension with a clear understanding of its implications. Accurately calculate your 2023 tax liability, ensuring a smooth process. Remember, extensions provide flexibility but require timely submission of payments to avoid penalties.
As we embark on the 2024 tax season, let’s embrace the opportunity to master our finances. With proactive steps, organization, and a keen understanding of key deadlines, you can make this tax season your most successful yet. Remember, our team is here to support you at every stage.
Ready to make 2024 your financial success story? Reach out to our professional tax preparation services for personalized assistance. Subscribe for more insightful updates, and let’s make this tax season one of empowerment and financial mastery!
This newsletter is provided by
Giles Consulting
2600 South Loop West, Suite 304
Houston, Texas 77054
accountingservices@riochigiles.com
www.riochigiles.com
The freedom to follow your passion and establish your own hours are only two advantages of being self-employed. However, it also has additional tax obligations that you might not be aware of. In this article, we’ll examine some of the major tax issues that affect self-employed people and discuss how to deal with them.
What Does “Self-Employed” Mean?
Self-employment means that you run your own business or provide freelance services as a sole proprietor or independent contractor, rather than working for someone else. Individuals who work for themselves must pay both the employer and employee portions of Social Security and Medicare taxes, also known as self-employment taxes.
Examples of activities that would make someone self-employed include:
Owning and operating a small business
Providing freelance services, such as writing, photography, or consulting
Renting out a room in their home on platforms like Airbnb
Driving for ride-share services like Uber or Lyft
Delivering food or other goods for companies like DoorDash or Amazon Flex.
What Are Self-Employment Taxes?
Self-employment taxes are taxes paid by self-employed people to cover their Social Security and Medicare contributions. These taxes are calculated based on the net income earned from self-employment, with a maximum earning limit that is subject to change annually.
The self-employment tax rate is currently set at 15.3%, with 12.4% going to Social Security and 2.9% going to Medicare. It is important to note that self-employed individuals are responsible for both the employer and employee portions of these taxes, as opposed to employees, who have their employer pay half of their Social Security and Medicare taxes.
Self-employment taxes must be paid quarterly in the form of estimated tax payments, or an individual may elect to have these taxes deducted from their business earnings. The Internal Revenue Service may levy penalties and interest if self-employment taxes are not paid.
Calculating Self-Employment Tax
Self-Employment tax applies to anyone that receives $400 or more from self-employment or $108.28 or more if you are a church employee. The tax is divided into two parts – Social Security and Medicare tax. Each is calculated differently.
Social Security Tax
As of 2022, self-employed individuals owe 12.4% for social security on the first $147,000 of net earnings. If you make more than $147,000 in a year, the rest of the earnings are not taxes for social security.
Medicare Tax
As of 2022, self-employed individuals pay 2.9% on their first $200,000 of net earnings for Medicare.
If married, you will pay 2.9% on the first $250,000 of combined self-employment earnings filing jointly or $125,000 filing separately.
For earnings over the income threshold, you must pay an additional 0.9% in Medicare taxes which increases the tax rate to 3.8% for the higher income earners. Unlike the Social Security portion, there’s no maximum amount for the Medicare portion of self-employment tax.
How to Pay Self-Employment Taxes
It’s also important to be aware of estimated taxes, which self-employed individuals are required to pay throughout the year. These taxes are based on your expected income and self-employment taxes for the year and are generally due on a quarterly basis. Failure to pay estimated taxes can result in penalties and interest, so it’s important to stay on top of these payments.
If you expect to owe more than $1,000 in self-employment taxes, you are responsible for making estimated quarterly tax payments to the IRS by mail or online via website or app. And when you file your taxes, you will file an annual tax return using Schedule SE to report your self-employment taxes paid.
To prepare for the 2023 tax year, here are the due dates for the quarterly tax payments:
If you earn income from January 1 – March 31, 2023, then your payment is due on April 18, 2023
If you earn income from April 1 – May 31, 2023, then your payment is due on June 15, 2023
If you earn income from June 1 – August 31, 2023, then your payment is due on September 15, 2023
If you earn income from September 1st to December 31st, then your payment is due on January 15, 2024
Here at Giles Consulting, in most situation we advise clients to set aside at least 30% of their net self-employment income throughout the year in order to be able to pay their Social Security, Medicare and income taxes.
Tax Deductions for Self-Employed Individuals
Not only do you have to pay ordinary income taxes, but you also have to pay self-employment tax which encompasses the part your employer would typically pay directly. This means a lot more of the tax burden is coming out of your finances. Which makes one of the most significant tax benefits for self-employed individuals is the ability to deduct business expenses.
As a self-employed individual, your tax liability is based on your net earnings. Net earnings refer to your gross business income minus the deductions the IRS allows you to claim. When it comes to filing your taxes, you may be able to deduct a variety of expenses, including your computer, travel, gas costs, and even retirement savings. Here are few strategies and common tax deductions for self-employed.
Maximize your contributions on retirement plans to lower your taxable income.
Take deductions for business overhead expenses, including any equipment or property you use in the course of your business.
Make donations to charity organizations, as you won’t have to pay income tax on the money you contribute.
Maximize your Health Savings Account contributions to take full advantage of deductions.
Self-Employment Tax Deduction: You may reduce your net earnings by half the amount you paid in social security taxes. Half of your social security tax (the part employers typically pay for employees) may also be deducted.
Home-office deduction: Another good way to save money on your taxes is to use the home office deduction. However, be cautious when claiming this deduction because the IRS has strict limitations on it. Rent, insurance, utilities, repairs, and mortgage interest are all allowable deductions. Direct expenses are completely tax deductible. Indirect expenses may be deducted in one of two ways. You can use the simplified method or the regular method which is based on the percentage of your house or apartment that your office occupies.
Qualified Business Income Deduction: If you have a “pass-through” business entity like a sole-proprietorship, partnership, S corporation, or LLC, you may be able to deduct up to 20% of your qualified business income (QBI) on your taxes. QBI is your company’s profit, minus non-qualified income.
Other Business Tax Deductions
Advertising and marketing costs
Bank fees
Business travel
Mobile phone and Internet costs
Continued Education
Health insurance premiums
Legal and professional fees
Start-up costs
Tax Advice and preparation fees
Personal Tax Deductions
Charitable donations
Medical expenses
Mortgage interest
Moving expenses
Retirement contributions
Student loan interest
These are just a few of the more common tax breaks available to self-employed individuals. A tax professional may be able to identify additional deductions. They may also assist you in determining which deductions apply to your specific situation.
Be sure to keep accurate records of all your business expenses, because you will need to provide documentation when claiming your deductions. Because tax laws and regulations change, it’s crucial to stay educated and consult a tax professional to make sure you are fulfilling your tax duties.
Don’t let taxes stress you out – take action now and get the help you need to ensure your taxes are filed correctly and on time.
