When it comes to managing personal finances, it can be tricky to know how to proceed. While many people start focusing all of their energy on taking care of the things they need at the moment, the truth of the matter is that there are a lot of things you can do to disrupt your finances that may be easy to ignore at first. For starters, it is crucial to move forward and identify tax issues, even if you haven't focused on them quite yet. Check out these short posts to learn more about how you could be faced with tax problems, and how to resolve the situation for the long run.
Running a small business comes with a variety of unique tax benefits, and many freelance writers are considered small business owners. If you write on a contract basis, use these tax planning tips to reduce your overall tax burden.
Claim the Self-Employed Health Insurance Deduction
As a self-employed writer, you're entitled to the health insurance tax deduction. Distinct from the health care premium tax credit, which is a credit that helps individuals and families reduce health insurance premiums, this deduction is claimed against a business' revenue. In order to claim the deduction, you'll have had to earn a profit writing over the course of the year.
The deduction allows you to reduce your writing profits by the full amount that you pay in health insurance premiums. For example, you can claim a deduction of $7,200 if you pay $600 per month in health insurance premiums.
Your tax bill won't go down by the total amount of your deduction, for a deduction lowers your profit (or income) and not your tax bill directly. As your profit decreases, however, your tax bill will likewise decrease proportionately depending on your income tax bracket.
For instance, a $7,200 deduction could save you anywhere from $720 (10 percent) to $2,664 (37 percent) depending on your income in 2019. The 2019 income tax rates range from 10 to 37 percent.
Deduct Some Internet Service Fees Proportionally
If you work at home, your internet service fees are partially deductible so long as you use the internet to research pieces, communicate with editors and sources, and submit completed work. How much of the fees you're able to deduct depends on how much of your internet use is for work.
To figure out how much you're able to deduct, estimate what portion of your at-home internet usage is for writing and what portion is for personal. Then, apply this ratio to your total internet bill. Multiply the total bill by the work-related percentage that you've estimated, and this is what you can deduct.
To see how this plays out, consider this simplified example. Assume you work 8 hours per day, stream videos 1 hour per day and spend 1 hour on other personal tasks (e.g. family emails and social media). Your work-related use would account for 80 percent. If your bill were $100 per month, you could deduct $80 each month or $960 over the course of a year.
For more information or help getting more tips, contact a tax planning company such as Hammernik Associates.
Share23 March 2020
