If You Have a Side Business, Hire Someone to Pay Taxes

For the average person, paying taxes is relatively easy . However, if you are part of a growing group of people who have a side business (or you are a freelancer), you should probably hire someone else.

As the personal finance website Mr. Money Mustache, having a side business means there are many special circumstances that you can ignore. The difference in how you categorize things like your own wages or expenses can make a huge difference in your tax burden:

When you start a small business, you get a little money from your customers, you spend (hopefully) a small portion of it on computers, restaurants, airplanes and taxis, your cell phone, internet services, and so on. All that remains is the profit, which usually goes straight to your tax return. Because you are self-employed, you must pay 15.3% on Social Security and medical contributions immediately after that income, and then pay federal and state taxes on that income. Quite a big bite. If you don’t:

When you reorganize into an S corporation, your company makes a profit, and you are just an employee (and owner) of the company. The company can pay you “reasonable” wages and then pass on the rest of the income to you in the form of “dividends”, which are exempt from this tax of 15.3%.

In addition to optimizing your tax returns, an accountant can also help you avoid costly mistakes that can come back to bite you later (on a personal note, a mistake I made when I was a 1099 employee three years ago cost me $ 3,000 last year) … If you’re willing to put in the effort to find out how your own taxes work, that’s great. But you are probably better off seeking help from a professional.

Should you do your own taxes? (and why I don’t) | Mister Money Usat via Rockstar Finance


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