At present, most self-employed people look for ways to cut down the tax liability of their business. This approach makes sense in the current age of rising prices. While they generally tend to rely on a 1099 tax calculator for this purpose, they also look for other options.
Here’s how you can limit the possibility of paying more than what you owe as tax liability.
- Decide if you want to file jointly with your spouse or individually
Self-employed taxpayers in the United States have the option of choosing how they would like to file for their taxes. Of course, to a large extent, it depends on their marital status.
Filing individually or jointly with your spouse has its share of advantages and downsides. Though 96% of couples in the United States choose to file jointly, it may not be the best option in all cases.
This is especially true if you are entitled to COBRA payments as a part of medical expenses. In such cases, filing your tax individually will entitle you to more deductions. The Child Tax Credit is another factor you may want to consider as well before making your tax filing decision.
If you are unmarried, including a qualifying dependant or filing as the head of the household will help you get more tax deductions.
- Know your eligibility criteria for tax deductions
Given that there is a long list of tax deductions, you may miss out on cashing in on one or more tax deductions for which you are eligible. Taking your time in exploring all the possibilities will help you overcome this challenge.
Before filing for your tax deduction, don’t forget to consider the following options:
- Reinvested dividends
- State Sales tax
- Child and dependent care
- EITC or Earned Income Tax Credit
- Charity Miles
- Medical miles
- Jury duty fees
- Student loan interest
- Charitable contributions out of the pocket
Check out if you qualify for these criteria for a tax deduction.
- Try to increase your contributions towards IRA and HSA accounts
Contributions to Individual Retirement Accounts (IRA) or Health Savings Account (HSA) or both can help you cut down the burden of taxes. When you make these contributions, they add up to your adjusted gross income (AGI).
Make sure you find out if you qualify to contribute to either one or both of these accounts.
- Keep an eye on the timing factor
By choosing the right timing strategy, you can avoid the maximum expenses linked to tax expenses. It can help maximize your possibilities for claiming a greater refund. If you can pay the outstanding tax-related expenses before the conclusion of a year, it will help you minimize the burden of taxable income.
Final thoughts
Getting a refund on taxable income may not be as easy as it sounds on the surface. That said, some proven ways, such as the ones listed above, can help you accomplish the task. Now that you know about some such ways put them into practice and see how they work for you.