Three BIG Ways for Freelancers to Reduce Their Taxes

If you’re an independent contractor, these are the three main reasons that you pay way too much in taxes and how to fix it.

Here’s the shocking reality: under current US tax law, independent contractors have the potential to pay more than any other group in taxes. It is not uncommon for independent contractors to be in a tax bracket greater than 50%. This means that of every dollar you earn, the government can potentially take more than half. Ouch. Why? The answer is three-fold. We will address the problems as well as the solutions.

First, self-employment taxes (otherwise known as FICA) are 15.3% for most independent contractors. If you were employed by someone else, they would be responsible for paying half of the 15.3%. However, as a self-employed person, you are responsible for the entire amount. Believe it or not, for many people, this tax represents a larger proportion of their tax bill than even the income tax. Fortunately, we can fix this problem pretty easily.

Second, bad advice. As an employee, you don’t have to worry too much about tax planning because, frankly, there is little you can do to reduce your taxes. However, independent contractors have many options available to reduce their taxes. They can use S-corps, MERPS (medical expense reimbursement plans), c-corps, kids’ tax brackets, travel expenses, home office deductions, etc, that simply are not available for employees. Herein lies the problem: most tax advisors do not understand how to use these options properly to reduce their clients’ taxes. In fact, many advisors even tell their clients to avoid these legitimate deductions because they simply don’t understand them or don’t want the hassle (i.e., they have bigger clients to worry about).

Third, administrative burden and expense. The solutions to the above problems require time and cost money. Most independent contractors are extremely busy and simply do not have the time and energy to focus on their tax situation. For the do-it-yourselfer, this requires a significant amount of effort. You must set up an entity and elect with the IRS to be an S corp, you must set up payroll with the federal and state government and remain compliant, make quarterly tax filings and payments, maintain a clean set of books (bookkeeping), and ultimately file an S corp tax return that requires significant expertise. This can easily cost $5,000 or more annually. Not anymore.

As you can see, there are many ways for freelancers to reduce their taxes. IC Tax Advisers has developed a solution for each of these three problems and made it extremely simple and cost-effective.

First, as the above suggests, we can use an S corp as an effective tool against FICA taxes. Now, this does require some expertise, so you will work with one of our CPAs to develop your tailored strategy.

Second, IC Tax Advisors exists only for you, the independent contractor. For many CPA firms, your business is too small to justify their attention. They want to land the big fish. For us, you ARE the big fish. Since we only work with independent contractors, we understand your needs and our niche focus allows us to provide expert advice at a significant savings. This leads us to our last point.

Third, we like to keep things simple. Our plans include access to a CPA, full-service bookkeeping, reporting, payroll, & tax returns for your business. We are only able to provide this because we focus only on the independent contractor–we are not everything to everyone. We have partnered with solutions that reduce costs, but deliver a painless experience that will ultimately save you money.

 

CLICK HERE FOR A FREE TAX CONSULTATION

Tags: business tax deductions, freelance taxes, independent contractor reduce taxes