David Kirkpatrick

March 1, 2010

Health care reform won’t help self-employed tax issue

As a self-employed freelance writer, I completely understand the pain of the odd taxes and hoops of red tape the IRS has put in front of the self-employed sole proprietor. Too bad none of the reform ideas floating around include helping those smallest of businesses.

From the link:

By a quirk in the tax code, self-employed workers who buy their own health insurance essentially pay an extra tax on their premiums. They’re the only taxpayers in the system who pay taxes on premiums, which count as a business expense for corporations and pretax income for employees. Because self-employed workers have no corporate employers to match their payroll tax contributions to Social Security and Medicare, they pay double the rate of wage and salary workers in a levy known as the self-employment tax equal to 15.3% of their net earnings. That’s on top of regular state and federal income taxes, and the income they spend on health premiums is not exempt.

The nation’s 9 million self-employed—sole proprietors with few or no employees, contract workers, and freelancers—constitute about 8% of the total U.S. labor force, according to the Bureau of Labor Statistics. (The Census Bureau counts 22 million sole-proprietors, but it’s not clear how many of those may be payroll workers as well.) “You correct this, think of the widespread health benefit you would give to so many people,” says Kristie Arslan, executive director of the lobbying group National Association for the Self-Employed (NASE), which represents the self-employed in Washington.

January 11, 2010

Taxes and the self-employed

As a freelance writer for many years I’ve been dealing with the ins-and-outs of filing taxes through the Schedule C self-employment form. With the state of the economy many more taxpayers are newly minted self-employers and get to wrestle with all the tax implications that status brings. Here’s a nice, quick overview of self-employment and federal income tax with some strategic advice thrown in for good measure.

My best advice? Obtain the services of a certified CPA, preferably an individual you can sit down with sometime in the next six weeks or so — do not wait until the last minute — to discuss your particular situation and how to take advantage of every tax opportunity available to you. After trying both ways (on my own or with tax software, and using a professional) the amount spent on CPA services is almost always easily covered by the saving the professional finds with your return.

I’m getting this post up this early in the year because if your employment status changed last year there is no time to procrastinate or delay getting everything in order well in advance of the ides of April.

From the link:

It used to be that the vast majority of people worked in staff jobs.

But in a tough economy, the number of independent contractors, temps, part-timers, and freelancers expands.

If you become a contingent worker, you’ll need to rethink your taxes. For someone used to being on staff, “It’s a mindset shift,” says Eddie Gershman, a partner in Deloitte Tax’s private client group. The common perception is that you’ll pay more tax if you work for yourself, since you’ll cover the employer portion of Social Security and Medicare taxes. While you will be on the hook for that self-employment tax, the tax advantages to working for yourself can soften the blow. Here’s how to get the most out of deductions:

December 2, 2009

Retirement planning for the self-employed

Filed under: Business — Tags: , , , , , — David Kirkpatrick @ 4:46 pm

Are you self-employed and looking for retirement planning options? Of course you take the process completely into your own hands through savings and investing, and I bet that’s the approach a lot of self-employed tax payers do. Being self-employed at all takes a certain amount of independence in your character. For the self-employed looking for more traditional retirement planning that’s geared for their specific needs two decent options include a solo 401(k) and a Simplified Employee Pension (SEP).

And keep in mind the tax savings from these retirement planning and saving vehicles. Here’s a good breakdown on what circumstances lend best to each option.

From the link:

A solo 401(k) may be your best bet if most of your income is from self-employment. You can contribute $16,500 to a solo 401(k) in 2009 plus 20% of your net business income (which is business income minus half of your self-employment tax), up to a maximum of $49,000 in 2009. You can also make a catch-up contribution of $5,500 if you’re 50 or older. You can’t contribute more than your business income for the year, but even if you earn just $16,500 from self-employment, you can contribute the entire amount to a solo 401(k). You must open a solo 401(k) by December 31, and you have until April 15, 2010, to make your 2009 contributions Your combined contributions to a solo 401(k) and any 401(k) you may have through another job cannot exceed the contribution limits.

If you have a 401(k) through a primary job and earn some freelance income on the side, a SEP-IRA may be a better option. It’s easier to set up — you can open an account at most brokerage firms or mutual fund companies that offer IRAs — and you can set aside 20% of your net business income, up to a maximum of $49,000 in 2009. You have until April 15, 2010, to open a SEP and make your 2009 contribution. See Do-It-Yourself Retirement Plans for more information.

August 18, 2009

Home office deduction for dummies

I go to the trouble of taking a home office deduction because it’s worth it to me. As a professional writer I’ve worked out of my home for a long time.

Many people have home offices, but less than half take the tax deduction because the process is not easy. Once you’re going it’s not too bad, but it’s still a little onerous.

This idea makes too much sense. Quick, easy and nothing would change for those of us who actually go to the trouble of taking full advantage of the tax break.

From the link:

To ease the process, Reps. John McHugh, R-N.Y., and Kurt Schrader, D-Ore., introduced the Home Office Deduction Simplification Act last spring. The bill would create a standard $1,500 deduction, which owners could opt for over the messier version. It would translate into a tax savings of about $500 for those who aren’t currently taking the deduction, says Keith Hall, tax adviser for the National Association for the Self-Employed.

August 12, 2009

Repeal the “health-care tax” for the self-employed

Now this is a great idea, of course I have a vested interest in the issue because I’ve been self-employed for years. This is just the sort of pro-small business action I fully expected Bush and the GOP controlled Congress to make happen. I gave up on that pipe dream early in Bush 43’s first term. I don’t expect Obama to do anything about the tax either, I’ll just not be nearly as disappointed. 

From the link:

By a quirk in the tax code, self-employed workers who buy their own health insurance essentially pay an extra tax on their premiums. They’re the only taxpayers in the system who pay taxes on premiums, which count as a business expense for corporations and pretax income for employees. Because self-employed workers have no corporate employers to match their payroll tax contributions to Social Security and Medicare, they pay double the rate of wage and salary workers in a levy known as the self-employment tax equal to 15.3% of their net earnings. That’s on top of regular state and federal income taxes, and the income they spend on health premiums is not exempt.

The nation’s 9 million self-employed—sole proprietors with few or no employees, contract workers, and freelancers—constitute about 8% of the total U.S. labor force, according to the Bureau of Labor Statistics. (The Census Bureau counts 22 million sole-proprietors, but it’s not clear how many of those may be payroll workers as well.) “You correct this, think of the widespread health benefit you would give to so many people,” says Kristie Arslan, executive director of the lobbying group National Association for the Self-Employed(NASE), which represents the self-employed in Washington.