Self-employment typically means you'll have a higher tax burden. Employees benefit from payroll taxes, which set aside money for taxes each pay cycle and require employers to pay a portion of Medicare and Social Security taxes. If one spouse is self-employed, the right deductions and credits can help lower your tax burden, but you still may end up paying more than if you were both employed.
Consider Your Filing Status
Before you file your taxes, you and your spouse should consider whether to file separately or jointly. There's no one right answer for everyone. The real question is whether your combined income is sufficient to catapult you into a higher income tax bracket. If this is the case, filing separately can save you a pretty penny.
Not all deductions are directly related to employment. By keeping track of your personal deductions, you can significantly lower your tax burden. Educational expenses can earn you a credit or deduction, and you can deduct any medical expenses that exceed 10 percent of your adjusted gross income. You can also deduct charitable donations, mortgage and student loan interest, and up to $3,000 for dependent care for your child.
Business expenses are the costs you pay to keep your business running and expanding, and most self-employed people have a wide variety of expenses. If you or your spouse works from home, you can deduct the portion of your mortgage and utilities that funds the home office. Professional memberships, employee benefits and salaries, advertising, continuing education and expenses such as retaining an attorney or using an accountant are also deductible. You can also deduct job-related travel and driving at the standard IRS mileage rate.
You can deduct the money you spend on business supplies. Because these supplies are tangible goods, this typically means doing little more than saving your receipts. Common deductions include computer and printer supplies; business software; office furniture; educational materials such as books, paper, pens and pencils; an office security system; and similar items.
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