| The United States is a nation of entrepreneurs. There | | | | a rate of 15.3% on your net earnings up to $87,900 for |
| are literally tens of millions of self-employed individuals | | | | 2004. For net income in excess of $87,900, you will |
| that enjoy pursuing their dream business. Of course, | | | | pay further taxes at a rate of 2.9% on the excess.In |
| few of you enjoy the paperwork and confusing tax | | | | an interesting twist that reveals the confusing nature of |
| issues that arise from owning your own business.Many | | | | the tax code, you are allowed a partial deduction for |
| self-employed individuals are considered "sole | | | | the self-employment tax. Simply put, you are allowed |
| proprietors" or "independent contractors" for legal and | | | | to deduct one-half of your self-employment taxes |
| tax purposes. This is true regardless of whether you | | | | from your gross income. For example, if you pay |
| are turning a hobby into a business, selling an | | | | $10,000 in self-employment taxes, you are allowed a |
| indispensable widget or providing services to others. | | | | deduction on your 1040 return of $5,000. Many |
| As a self-employed person, you report business | | | | self-employed individuals miss this deduction and pay |
| revenue results on your personal income tax return. | | | | more money to taxes than needed.Health Insurance |
| Following are a few guidelines and issues you should | | | | DeductionThis used to be a very messy area for |
| keep in mind if you are pursuing your entrepreneurial | | | | self-employed individuals, to wit, you received little tax |
| spirit.Schedule C - Form 1040.As a self-employed | | | | relief when it came to your health insurance bill. This |
| person, you are required to report your business | | | | was a particular burden for small business owners |
| profits or losses on Schedule C of Form 1040. The | | | | when considering the astronomical cost of health |
| income earned through your business is taxable to you | | | | insurance. All of this has changed and you now may |
| as an individual. This is true even if you do not | | | | deduct 100% of your health insurance costs as a |
| withdraw any money from the business. While you are | | | | business expense.No Withholding TaxUnlike a salaried |
| required to report your gross revenues, you are also | | | | employee sitting in a cubicle, you are not subject to |
| allowed to deduct business expenses incurred in | | | | withholding tax on your paycheck. While this sounds |
| generating that revenue. If your business efforts result | | | | great, you are required to make quarterly estimated |
| in a loss, the loss will generally be deductible against | | | | tax payments. If you fail to make the payments, you |
| your total income from all sources, subject to special | | | | are subject to a penalty, but the penalty is not the |
| rules relating to whether your business is considered a | | | | biggest concern.A potential and dangerous pitfall of |
| hobby and whether you have anything "at | | | | being self-employed is failing to pay quarterly |
| risk."Home-Based BusinessMany self-employed | | | | estimated taxes and then getting caught at the end of |
| individuals work out of their home and are entitled to | | | | the year without sufficient funds to pay your taxes. |
| deduct a percentage of certain home costs that are | | | | The IRS is not going to be happy if you fail to pay your |
| applicable to the portion of the home that is used as | | | | taxes and you will suffer the consequences in the |
| your office. This can include payments for utilities, | | | | form of penalties and interest. Making sure you pay |
| telephone services, etc. You may also be eligible to | | | | quarterly estimated taxes helps avoid this situation and |
| claim these deductions if you perform administrative | | | | it is highly recommended that you follow this course of |
| tasks from your home or store inventory there. If you | | | | action.Record KeepingYou must maintain complete |
| work out of your home and have an additional office | | | | records of all business income and expenses. Simply |
| at another location, you also may be able to convert | | | | put, document everything. Create a filing system for |
| your commuting expenses between the two locations | | | | each month and file every receipt, etc. All business |
| into deductible transportation expenses. Since most | | | | travel expenses must be documented, including auto |
| self-employed individuals find themselves working | | | | mileage you incur when performing business tasks. |
| more than the traditional 40-hour week, there are a | | | | Office supply stores sell business mileage books that |
| significant number of advantageous deductions that | | | | you can keep in your car and use whenever you |
| can be claimed. Unfortunately, we find that most | | | | travel. If you have any doubt about documenting |
| self-employed individuals miss these deductions | | | | something, just do it!In ClosingAs a self-employed |
| because they are unaware of them.Self-Employment | | | | individual, your focus and time is spent on making your |
| Taxes - The Bad NewsA negative aspect to being | | | | business successful. Your focus is not on the |
| self-employed is the self-employment tax. All salaried | | | | complexities of the tax code and how to limit the |
| individuals are subject to automatic deductions from | | | | amount of taxes you owe. If any of the information in |
| their paycheck including FICA, etc. In that many | | | | this article is new to you, then it is highly likely you have |
| self-employed individuals often do not run a formal | | | | paid far more in taxes than required.Richard A. Chapo |
| payroll for themselves, the government must recapture | | | | is with - recovery of business taxes through tax help |
| these taxes through the self-employment tax. Simply | | | | and tax relief. Visit to read more business tax articles. |
| put, you are required to pay self-employment taxes at | | | | |