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Self-employed must master year-round tax planning

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NEW YORK (5/14/08)--Although the typical tax season has come and gone, tax planning never stops for the self-employed. If you’re a small-business owner, keep your eyes on two major goals: Meeting your tax responsibilities and claiming the tax breaks you deserve (MarketWatch.com May 4). For anyone starting a small business, it pays to get--and stay--organized for maximum tax benefits:
* Keep good records. To get accurate estimates of quarterly tax payments, your best bet is to use computer software--such as Microsoft Money Plus or Intuit Quicken Home and Business 2008--to keep your finances organized. * Take allowable deductions. Besides taking home office deductions if that’s your principal place of business, don’t neglect certain start-up costs, as well as health insurance (MSNBC.com April 7). You may be eligible to deduct the cost of health insurance--as well as contributions to a health savings account--for yourself, your spouse and your dependents. * Consider shifting income to family members. This has significant advantages if the family member in question is in a lower marginal tax bracket. Don’t go overboard, though--the Internal Revenue Service (IRS) may question a disproportionate amount of compensation to a family member. * Don’t neglect retirement contributions. If you don’t have any employees, set up a Keogh, Simplified Employee Pension (SEP), or Individual Retirement Account (IRA) so your contributions grow tax-deferred until withdrawal. If you have employees, you may have to set up a retirement plan for them as well. * Keep track of auto expenses. Check the IRS website (irs.gov) for details on what can and cannot be deducted.
For more information, read “SEP, SIMPLE Plans Help Entrepreneurs Reach Retirement Goals” in Home & Family Finance Resource Center.