Year End Tax Planning For The Self-Employed
BOSTON (CBS) - Self-employed individuals do get some decent tax breaks. Maybe not as many as the big guys but take advantage of as many as you can.
You can claim a 100% deduction for your health insurance costs. This is a very expensive item in anyone's budget. This deduction does not go on your schedule C but on the first page of the 1040.
And if you don't have health insurance because you thought it would cost too much you will be penalized. The Affordable Care Act (ACA) requires every individual, with some exceptions, to have qualifying health insurance coverage in 2014 or owe an "individual responsibility payment". The penalty could be as much as $285.
If you make a capital purchase for your business you normally would depreciate it. That is expense it over the life of the asset, usually 3 to 5 years. Small business owners are allowed to write off some of their equipment in the year they purchase it if they qualify for Section 179 Expenses. The limit for this year is $25,000.
So take the time to evaluate what your profit will be this year and what your business needs are. New equipment; a computer, printer, a smart phone, office furniture, software, table saw, chain saw.
If you are using your car in your business and do not itemize your expenses, the Standard Mileage Rate for this year is 56 cents a mile. This is the mileage rate for the cost of operating your car, van, pickup, or panel truck.
Do not forget retirement planning. You can set up a SEP-IRA by the end of the year. This is a Simplified Employee Pension Plan for yourself and if you have employees, you will need to include them as well. You can contribute up to 25% of your income with a limit of $52,000 for 2014. The business makes the contributions for you and your employees.
If that's too much bother, at least set up an IRA to shelter some of your profit this year. Limits are $5,500 for this year with a catch up provision of $1000 if you are over 50! And you have until you file your tax return next year.