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Taxes Explained!

by Dallas
Tax

If you are self-employed or run a side business tax time can be especially stressful.

But even more so, if you feel that you don’t really understand how they are calculated.

You don’t want to miss out on deductions, and you definitely don’t want to end up with an audit! (Even if you are not incorporated L.L.C. C corp. or S Corp. the government considers your venture, side gig, or hobby a “business” as long as you make an effort to make money. So even if it is not your main income, you have to report all income to the IRS.)

If your business made less than $10,000 this year, you can probably use tax software like TurboTax. But if your business or side business made more than that, you should be paying estimated quarterly taxes, and it is worth it to go see a tax professional. (Plus their fee is tax deductible!)

I’ll start by explaining what these things are:

  • “Above-the-line” deductions
  • AGI (or Adjusted Gross Income)
  • Standard deductions
  • Itemized or “below-the-line” deductions
  • And the IRS form for the self-employed (and side businesses) schedule C.

And then I’ll list the deductions that are most important for crafters, artists, and artisans.

“Above-the-Line” Deductions are Subtracted From Your Total Income

You take these deductions on the 1040 income tax form. These are considered the most valuable deductions, because they have the biggest impact on your final tax bill.

“Above-the-Line” Deductions For Accidental Entrepreneurs

  • Business expenses
  • Contributions to self-employed pension plans
  • Contributions to traditional IRA
  • Certain “early withdrawal” penalties
  • Self-employed health insurance premiums
  • Contribution to Health Savings Account (HSA)
  • 50% of your self-employment taxes (these are payroll taxes: Social security, Medicaid, etc. – If you are an employee, your employer pays half (4.5%) but if you are self-employed you pay (7%))
  • Deduction for clean fuel vehicle
  • Higher ed. costs & interest paid on student loans
  • Losses from sale of property
  • Made in the USA (domestic production tax credit) Do you make things? This is for you! (Ask your accountant or tax professional about this one because it is a little complicated, but if you make things in America – instead of outsourcing jobs overseas – you should be able to take this deduction.
  • And not related specifically to entrepreneurs: alimony payments (if you receive alimony, you must claim it as income)

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