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Leslie (not her real name) sits in her home office, papers spread across the floor, empty Red Bull cans strewn about, feeling tired, irritable and looking like a college kid cramming for a final. Only she’s not a college student. Leslie is a 48 year-old entrepreneur who owns a small software company that helps animal clinics around the country.
“This is not what I want to be doing right now,” she says, staring at two computer screens.
It’s tax time! And while it might not be your favorite season of the year, there is good news for millions of filers. Unemployment remains under 4%, hourly earnings are on the rise and according to estimates from the Tax Policy Center, 76.4 million Americans, or 44.4%, won’t pay any federal income tax for 2018. Part of that is due to the lower tax rates and higher standard deductions that came with the Tax Cuts and Job Act. But if you’re like an estimated 1 in 7 Americans who won’t file their taxes until the week of April 15th, there’s still time to avoid penalties, save money and possibly receive a tax refund.
For many members of the gig economy, it’s all about figuring out how to get every deduction you can. Turbotax (full disclosure, they’re an Umpqua partner) has a specialized product for the self-employed called “TurboTax Self-Employed.” Small business owners can use this tool to complete personal and business taxes, saving time and money in the process. Whether you’re a small business owner or filing your own taxes, here are 5 tips that could help you save money on your 2018 taxes and in the future.
Use tax filing software
It’s easy to rationalize paying a professional because you want the extra assurance. But most platforms today offer individuals and small business owners the kind of protection they may not otherwise be able to afford. Turbotax, H&R Block and TaxSlayer are the three most popular and each will help you prepare your return, file it and back it up online for future reference. The Internet may not be good for everything, but taxes are an area where it truly excels.
Start a side hustle
Let’s say you’ve always wanted write about personal finance. Or teach a class in beer making. Perfect. You’ve got your own small business. According to the IRS, any business must have a “predominant, primary, or principal objective of realizing an economic profit independent of tax savings.” The general rule is if you have not turned a profit in at least 3 of the past 5 years, it’s a hobby and not a business. But while you’re trying to make your business profitable, you can write off many of the associated expenses.
Contribute to your retirement accounts
If you haven’t funded your retirement account for 2018, you still have time. The deadline is April 15, 2019. That’s the deadline for a traditional IRA and a Roth IRA. For 2018, the maximum contribution to an IRA is $5,500 ($6,500 if you are 50 or older). If you have a Keogh or a SEP and you get a filing extension to October 15, 2019, you can make 2018 contributions up until that time. For 2018, the maximum contribution for self-employed people is $55,000. Making a retirement contribution is deductible this year and the money will grow tax deferred for years to come. It’s a win-win if ever there was one.
Take a home office deduction if you qualify
In the past, filers shied away from taking a home office deduction because it served as a red flag to the IRS that could trigger an audit. But the eligibility rules have changed to allow more of the self-employed to take advantage of this break. If you don’t have a fixed location for your business, you can still claim a home office deduction if you use your home for administrative or management activities. Just use the allotted space exclusively for that business. Here’s a quick primer on how to calculate your deduction.
The big change this year is the standard deduction was raised to $12,000 for individuals and $24,000 for married couples filing jointly. And while it’s obviously easier from a record keeping standpoint to simply take the standard deduction, you could save quote a bit more if you itemize, especially if you’re self-employed. Note: If a portion of your medical expenses exceeded 7.5% of your Adjusted Gross income, you can still deduct that amount for 2018.
Filing taxes is about as much fun as washing dishes or changing diapers. But with a little planning and preparation you could be in line for a refund this year. And refunds are fun. With the extra money you could take a trip or save for something special. Umpqua’s Access Checking comes with up to three complementary savings accounts and offers four rebates a month on non-Umpqua ATM fees. Open an account online or visit your nearest Umpqua Bank to learn more.