Year-End Tax Strategies for Independent Contractors and Self-Employed Workers Who require Tax ReliefSunday, September 25th, 2011
Using the recession and surging unemployment swelling the ranks of people reinventing themselves, an incredible number of taxpayers are establishing home-based businesses and providing their services as self-employed independent contractors. Whether your brand-new self-employed independent contractor status is a temporary measure or part of your long-planned guide to fortune and glory, you will find tax dangers (plus surprisingly lucrative income tax relief) which should grab the interest of every self-employed independent contractor.
We know the IRS is targeting self-employed independent contractors. The federal government estimates that 85% from the $345 billion tax gap is due to self-employed individuals – freelance professionals and independent contractors that do not obtain a 1099 the way large business employees do. Being a self-employed independent contractor means you are the boss, unfortunately it also means you’re the one on the hook for just about any issues with back taxes. How you handle your back tax problems will not only determine whether your company will succeed, it carries the actual threat of incarceration if you achieve it wrong.
For more information methods to legitimately maximize deductions while avoiding IRS problems, take a look at Part 2 of the series on Tax Help Tips for Saving Money on Taxes for Freelance Professionals and Self-Employed Individuals.
Continue reading for my best year-end tax help tips to show self-employed independent contractors ways to get the largest income tax relief possible.
Year-End Income Tax Relief Tip #1: Did you owe back taxes since you made a mistake inside your quarterly estimated taxes? If you’ve spent your lifetime being employed as a worker, you may be delighted the first money you obtain like a self-employed independent contractor is really a flat rate without any taxes taken out. But your joy should be short-lived, this can be a case of the taxman being delayed although not denied.
Contact a tax attorney to successfully have structured your company correctly. Should you haven’t gotten tax help from a tax attorney yet, there’s still time for you to structure your company to find the maximum tax relief before the year end. (Next you’re stuck with your mistakes. Well, mostly. A good tax attorney or tax resolution specialist can still get you out of back tax trouble, however the best approach is to avoid owing back taxes in the first place.)
Year-End Tax Relief Tip #2: Are YOU really a self-employed independent contractor? Many businesses (small and big) mislabel their employees as “self-employed independent contractors” to get income tax relief and sidestep a host of state and federal laws. If your boss has you misclassified like a self-employed independent contractor and also you file as you, you may be inside a heap of trouble once the IRS comes knocking on either your door or your boss’s door to collect back taxes. Suddenly, those lovely deductions go out your window as well as your tax bill explodes. If you feel your boss has misclassified you like a self-employed independent contractor, contact a tax attorney or tax resolution specialist immediately for some self-employed independent contractor back tax help before the year ends.
Year-End Income Tax Relief Tip #3: Are the subcontractors really self-employed independent contractors or are THEY employees? As you may be a true self-employed independent contractor, you need to establish whether your subcontractors are self-employed independent contractors or employees. Based on IRS Summertime Tax Tip 2009-20, “the price of misclassification to employers in taxes, in addition to administrative time, or the loss of tax-favored status for employee benefit plans, could be steep.” If you’re unsure, speak to a tax attorney or tax resolution specialist to obtain tax help immediately.
Year-End Income Tax Relief Tip #4: Would like to get income tax relief on your 2009 self-employed independent contractor work by delaying paying taxes until 2011? For any host of income tax relief reasons, a self-employed independent contractor may want to defer receiving payment until the coming year. If you did work in 2009 but don’t wish to pay 2009 taxes on it, simply wait to invoice your customers until January 1, 2010. This 2009 income tax relief technique is perfectly legal for self-employed independent contractors as long as you pay taxes on that income in your 2010 tax return.
Year-End Income Tax Relief Tip #5: Have that root canal before New Year’s. The secret to income tax relief is just like the key to great comedy…timing. A self-employed independent contractor’s medical expense deduction is restricted to 7.5% of the self-employed independent contractor’s adjusted gross income. If you haven’t reached that cap yet, go have those dental procedures or that bit of elective surgery (we aren’t just talking about that nose, the swimsuit season can be used again before very long). As long as you’re under that 7.5% limit, you will get tax relief from your standard variety medical expense deductions. Just a little known year-end tax relief tip – you do not even need to purchase the surgical procedures before January 1, 2010. Just put the medical charges on plastic and spend the money for minimum balance. As long as you had the procedures last year, the deduction is good. In case your medical expenses are already over the 7.5% level of your self-employed independent contractor’s adjusted gross income, you should delay breaking your leg until January 1st, 2010.
Year-End Tax Relief Tip #6: Pay your state taxes before the ball drops. As a self-employed independent contractor, one of the best income tax relief strategies would be to pay your state estimated tax before December 31st. If you pay by December 31, 2009 you get the deduction (in your federal return) in 2009. You may also charge these expenses on your credit card(s) in 2009 and get the deduction in 2009, while you won’t be paying for them until 2010. If you are having issues paying your estimated state taxes, a tax attorney can provide you with tax assistance to get the maximum tax relief possible.
Year-End Income Tax Relief Tip #7: Make your stock market losses work to your advantage. If your personal portfolio has taken a nose dive, realize your tax losses before New Year’s Eve. Long term capital losses may be used to offset long-term capital gains, and up to $3,000 of ordinary income, with any remainder carried forward for use in future years. This is about getting income tax relief not whether you made the best investment choices. If you still believe those stocks goes up again, get them back on January 1st. Remember that some mutual funds might have high capital gains distributions even while they lose money. The best income tax relief advice is to ditch these first since they’re hitting you with a double whammy. As a self-employed independent contractor you can get some of the best retirement accounts available like a SEP-IRA. To comprehend which investing should be done as part of a retirement account, and that ought to maintain your individual portfolio so when to take losses for maximum tax relief, get tax help from an event CPA or tax attorney.
Year-End Tax Relief Tip #8: Give your personal gifts before Rudolph goes flying. Like a self-employed independent contractor, you are able to give a family member or friend up to $13K annually prior to the year end without gift taxes. (Your spouse can give that same amount to exactly the same individual.) You can also give that same add up to your child’s or grandchild’s tax-free 529 education plan. If you haven’t funded this type of plan yet, you may make a single contribution covering 5 years of gifting. That’s $65,000 you can give per donor per recipient tax-free. (Your partner can match that contribution too.)
Year-End Tax Relief Tip #9: Give gifts to clients: Gifts to customers are limited to $25 per recipient each year, BUT if the gift has your embossed logo on it and tells about your services, it isn’t a gift, it’s an advertising or promotional expense. There’s a thin line here, a fast call to a CPA or tax attorney for year-end tax assistance will make you stay about the right side from the law.
Year-End Tax Relief Tip #10: Take your retirement contribution to the max. Self-employed independent contractors have the best income tax relief vehicle the federal government has ever offered. While individual worker contributions to some simple IRA max out at $11,500, if you are under 50 in 2010 ($14,000 if you’re 50 plus), how’s this for serious tax relief, as a self-employed independent contractor you can use SEP-IRAs to contribute 25% of the wages (or up to 20% of the Schedule C income) up to and including more $49,000. The income tax relief to some self-employed independent contractor are massive. A tax lawyer or CPA an give you the tax assistance to setup the best retirement vehicle for you.