Many developers are choosing to freelance due to the fear of business issues; any one of the most intimidating issues of these would be handling the federal income taxes. This can be pretty hard as many of the developers aren’t able to understand the idea of the payment or the taxes applied for the applications that they are working on once they are self-employed. This blog is posted by letting the people know that the fear of the tax would prevent one from striking out the freelancer. One of the best things about knowing about this is, you can gain an insight of dealing with such issues.
Here I’m going to discuss the management of taxes for the business so you can see the benefits of being a freelancer. Let me break down that we have to do and why we have to do.
- Why freelancers are having tax advantages?
- How to get and utilize a flow-through entity?
- How to handle the reimbursement money that is spent on travel and other expenses?
- How about reimbursing for the equipment and other services that are involved in the project development?
One of the biggest things that you should understand the goal in the business is keeping the revenue as high as possible. This kind of work will make a lot of revenue if you know how to hit the right spot if you aren’t earning more money than you spend then it isn’t worth doing freelancing. One of the best ways to save money is concentrating more on tax management would save a lot of money for the developers who are freelancing. Now, let’s know in what ways we can save money from the employment taxes by utilizing the money.
Freelancers can save a lot of money by utilizing a pass-through entity
First, you need to structure your freelance business, and this is one of the important things that need to be done in your freelancing business. You can become a sole proprietor as a ‘Schedule C’. This will help you to break down the business’ revenue and the expenses that are spent on the personal tax in return. You can also begin working on your individual entity, like LLC. An LLC is filing its own tax returns where it will report the expenses, revenue and the net income of the company as well. Keep reading and I’ll provide everything in the simple and elegant way.
The LLC will not pay taxes itself even though when it has the individual entity. The net income of the LLC will be reported on the personal tax return of yours. Let’s look at what is self-employment for taxes and how we can save money by using a flow-through corporate. In case you want to know about the tax filing and other details you can check with the GST software guides that are available online. Even though this sounds complicated to all the people, but I will help you get what you need to do to cut the tax amounts. For instance, if you are a freelance and sole proprietor and after the expenses, you have made, you clear $100,000.
If you have got a paycheck for working in a job then you are pretty used to pay 6.2% of your salary to both the governments that are the union and the state for Medicare and Social Security, these are your employment taxes. Self-employed individual workers are getting paid from various sources and paying all these taxes in the name called ‘self-employment tax’. If you file the taxes to the government, you’ll roughly owe somewhere around $6200 under self-employment tax on the top of all the income taxes in the federal level. You will pay all these taxes if you are in the sale of an independent contractor, proprietor or even if you are an LLC with no corporate election.
If you are working yourself as a freelancer, and have a proper set up for your business then you start to realize that there are a large number of tax advantages while opting for that. This blog is just a quick overview of some of the issues that are dealt with the taxes by small businesses; once you have started running your business then you can really see that those things aren’t complicated either. Don’t let these issues let you down, it is common that many of you might have come across these apprehensions but there is always an option available to overcome.