I don’t like paying the IRS more than necessary.
- Taxes are a burden for many people.
- I legally keep mine lower by maximizing my retirement plan and keeping a close eye on business expenses.
I learned a long time ago that taxes are a part of life – namely, when I got my first meager salary from a part-time job in high school and saw part of my salary go missing. . But that doesn’t make it a role I particularly enjoy.
As a self-employed person, each year I make estimated quarterly payments to the IRS in hopes of meeting my tax liability. And most years I still end up owing money when I file my tax return.
Yet, I’m taking three key actions that help me pay less tax overall. And don’t worry, they are perfectly legal. Here are a few you might want to try.
1. I maximize my retirement plan
Being self-employed means I am able to contribute money to a solo 401(k). This is a special 401(k) that comes with higher contribution limits than a traditional 401(k).
But no matter what type of retirement plan you have access to, it pays to maximize your contributions if possible. If you put extra money into a traditional IRA or 401(k), that’s pre-tax income that the IRS won’t be able to tax you on. Plus, it’s money you can save and invest for your future.
2. I keep solid records of business expenses
As a freelance writer, I don’t incur a ton of expense as part of my job. But I have my share of legitimate expenses that I can deduct.
Take my Internet service, for example. I need it to do my job, so I have no problem deducting it from my taxes.
Also, from time to time, I have to invest in hardware to do my job, whether it’s a new mouse, keyboard, or laptop. These are also worthwhile expenses considering my work.
One thing I always make sure to do is keep good records of my business expenses. Not only do I keep the receipts, but I scan them to make sure they don’t degrade over time. This way I am able to maximize my tax relief.
3. I am careful to take gains on my brokerage account
Although I currently house my retirement savings in a solo 401(k), I also have money invested in a regular brokerage account. This money is, if all goes as planned, money that I hope to use for retirement purposes. But I like the fact that my brokerage account gives me flexibility. If I need to withdraw funds from this account at short notice, I have the right to do so.
At times, I may decide to sell stocks in my brokerage account for profit. But I usually only will if I’ve kept them for at least a year and a day. This way, the capital gains taxes I will be charged will be lower than what I would pay to sell investments for a profit after only holding them for a year or less.
Paying taxes is something we all have to do. But there’s nothing wrong with being strategic, so you end up paying less.
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