The President’s latest State of the Union speech focused on job creation and the economy, predictably, the two biggest issues facing American citizens and many citizens of countries around the world. But the self-employed face additional challenges, heavy tax burdens and painful health care costs in addition to problems associated with high joblessness and a bad economy. So what’s the state of self-employment, and what will professionals have to face in the immediate future?
Self-Employment Tax Changes
The biggest change the self-employed face in the coming year is tax increases. Health insurance premiums will no longer be deductible from the self-employment taxes paid by individuals and small business owners, which translates to an approximate 15% tax hike for many.
But that’s not all. Unless the payroll tax relief is extended (currently it’s set to expire at the end of February 2012), small businesses will pay even more taxes at the end of the fiscal year. When new increases are piled on top of an already overwhelming tax burden, self-employed professionals will find themselves facing even bigger challenges when it’s time to pay their taxes.
Getting Started in Self-Employment
When jobs are hard to find and the economy makes life difficult for professionals, many turn to self-employment as a way to earn extra money and alleviate some of their burdens. But professionals who wait to launch a self-employed career in 2012 will get fewer benefits than those who began a year earlier. The Small Business Jobs Act, which allowed individuals a $10,000 deduction for establishing start-ups in 2011, will be reduced to $5,000 in the coming year.
Starting a business can be very expensive, even for small business based out of the home, and the tax deduction is essential for some who are trying to get started in a new career. Use additional deductions to get relief and cut down on business startup costs. Remember that professionals who work at home may claim a home office deduction. Self-employed professionals may also deduct the cost of equipment, office supplies, even a portion of the Internet and utility bills that go toward powering a home office.
The State of Self-Employment
So what can the self-employed expect in the future? Many are crying for tax relief to be extended, for rates to be cut and for life to be made a little easier for the self-employed. Some politicians are firmly behind the cause, and some self-employment groups are working hard to lobby Congress to make the necessary changes. In other words, there is some hope on horizon…but independent professionals should still continue to save at least $15 out of every $100 they earn in order to pay for their taxes. Keep track of receipts in order to make necessary deductions that will lessen the burden, and get some relief from the expense of being self-employed.
KC Morgan - KC Morgan has been the featured writer in Self-Employment since 2006, using personal experience to create guides to being self-employed.
Join the Conversation