If you are self-employed, or are operating a side business in your spare time, you have special tax problems and tax opportunities.
Retirement Plans: You may be able to shelter all, or a portion, of your self-employment income even if you are covered by a plan through your employer.
Estimated Tax Payments: If you have self-employment taxable income you may have to make estimated tax payments throughout the year or incur an underpayment penalty. For 2007, one way of accomplishing this, would be to pay in 100% of your 2006 tax liability, or 110% of your 2006 tax liability if you had adjusted gross income in excess of $150,000. The other way is to pay in 90% of the 2007 tax liability.
Health Insurance Premiums: You may be able to deduct 100% of your premiums paid in 2007 as an adjustment to income on your Form 1040. The only limitations are (1) the amount can’t exceed your net earnings from your business, and (2) you can’t have been eligible to participate in a subsidized health plan of your employer or your spouse’s employer.
Home Office: If you use your home to conduct your business, a percentage of the ongoing expenses, including depreciation, may be deductible. The percentage is based on the square footage used for the office in relation to the entire home.
Employ your Children: This technique allows you to shift income to your lower-bracketed children and to get work done in the process. Earned income is not subject to the so-called “kiddie” tax. This only works if the work is legitimately performed and the amount of the compensation is reasonable.
