As a self-employed SEM/SEO, you’re enjoying some new benefits and challenges to your work. The benefit you’re probably enjoying most is getting to work on your own schedule. Nonetheless, you’re probably challenged with spending a lot of time link building for your clients, promoting your website, and possibly being concerned about paid links getting you blacklisted by Google. On top of all of that, perhaps your biggest challenge to juggle in being self-employed is your taxes. Paying taxes as a self-employed worker is almost like learning a completely new language. Here are 4 tax tips that will help you as an SEM/SEO.
- Know the self-employment tax
Now that you’re a self-employed SEM/SEO, you’ll have to pay an additional tax that is added to your regular income tax. This tax is called the Self-Employment tax. You will pay around 15% of your total earnings you’ve made from self-employment. Here’s an example of what that might look like for you. A single person making $50,000 per year puts them in the 25% tax bracket. Let’s say you take on a new project that earns you about $3,000 in income. Of that $3,000 in income, you’ll be paying about 40% of that money. 40% is the sum of the 25% you pay in the tax bracket you’re in, and the additional 15% you pay as a self-employed worker.
- Claim deductions and write-offs.
It’s not the most rewarding feeling to make money as a self-employed worker but end up having to give away 40% of every dollar you make. Given the level of taxation you’ll potentially experience, it’s important to claim as many deductions and write-offs as you legally can. Think of all the expenses you have that would be considered “ordinary and necessary” for your business. These expenses can potentially be counted as a tax deduction. Examples of “ordinary and necessary” expenses may include web hosting plans for your website or SEO books or subscriptions to SEO sites that help you to stay up-to-date in your industry.
For a more in-depth look at how this works, let’s say you decide to pay $399 for a subscription to SEOmoz. For those unfamiliar with Moz, they’re a company that offers tools to help make SEO, inbound marketing, content marketing, and link building easier. If you decided to purchase the subscription, you could write this down as a business deduction, and this will be $60 off of your employment tax, and $100 off of your income tax. The deduction adds up to a $160 tax saving, and the total out-of-pocket expense for the subscription you purchased would amount to $239 instead of $399.
Keep in mind that there are different rules for deducting purchases of computers and any other related hardware you use for your business. For equipment that is expected to last you more than one year, the deduction is broken down over multiple years, rather than it being taken up-front entirely after you’ve paid for the item. There is an exception to this rule that can benefit you. If the equipment that you buy is used more than 50% of the time for your business, there’s a special form called Form 4562 that you can fill out. That form will allow you to make a deduction on the business-use portion of the cost in the first year. An example would be if you made a purchase for a computer for $3,000. If you used that computer 70% of the time for business, you could fill out the special form, and claim a deduction for $2,100 in the year you bought it.
- Make quarterly estimated tax payments
If you’ve ever worked for a company before, you probably already know that as an employee, your taxes are automatically withheld from your paycheck. For business owners, they have to make tax payments four times per year. As a self-employed person, you are your own boss, and you’ll have to do this yourself. It can be a little complex to understand the process when you’re reviewing the IRS literature. If you make less than $150,000 per year, there’s a simple way to understand how much your quarterly estimated payment is.
To get your quarterly payment amount, you simply divide the total amount of taxes you paid last year by four, and that’s the amount you will pay. In general, if you expect that you’ll owe $1000 in taxes or more, or if in the previous year your tax liability is greater than $0, you’ll have to pay quarterly estimated taxes. For those who are running their business as a corporation, if you expect that you will owe at least $500 in taxes, you’ll be required to pay quarterly estimated taxes. It’s important you remember to make these payments because if you don’t, you’ll end up paying a penalty when Tax Day arrives.
- Time out your expenditures
There’s often a rise in business equipment sales around the end of the year. The reason for this is that if you buy business assets by December 31, you’re able to start depreciating for this tax year. In addition to depreciating them, you could also potentially take a section 179 deduction, which allows you to deduct the entire cost of the asset you purchased in one year as an expense. All business expenditures are counted as made in the year that you purchase them. It’s counted even if you used a credit card or any other deferred payment plan that pushes payment of the expenditure to the following year. Another thing you can keep in mind is to try not to buy inventory or supplies that you know will likely be a part of your inventory before the end of the year. You usually shouldn’t deduct the cost of inventory until you sell the product.
Living the life of a self-employed SEM/SEO has the benefits of allowing you more flexibility with your time, but also the challenges of taking on a lot of work on your own. You can lessen the burden of your work by managing your taxes properly. The better you manage your taxes, the more earnings you’ll be able to keep and continue supporting yourself as a self-employed worker. For more information, Please visit : taxfyle.com/blog
