Self-employment gives you an enormous amount of freedom. You can pick and choose the jobs you want, work according to your own schedule, and take as much time off as you need for vacations, personal errands, and self-care.
When you invoice each client for the work you’ve done, it can seem like a much more lucrative career path than being an employee for a big company. But the moment your annual tax bill comes through, it’s understandable you might long for the safety net of a steady income. Paying off your tax all in one go can be a lot more stressful than having it automatically taken out of your salary each month. But fortunately, there are lots of ways for self-employment workers to reduce the amount of income tax they are required to pay.
It’s important to note that this article is not condoning tax evasion, which is illegal, or tax avoidance, which is unethical. Instead, it gives you some practical advice on how to make the most of the tax benefits that are available to any freelance worker. If you are not aware of these tips, you may be paying more tax than you should.
Read on to learn five ways to reduce your income tax bill.
Claim for expenses
Any money you spend on something that is essential for your work can be claimed back as a tax deductible expense. This includes things like laptops, business travel, stationary, and training courses. Make a note of any relevant purchases you make and keep the receipts somewhere safe. When it comes to submitting your tax return, you can include this information in your application and the figure will be deducted from your taxable income.
Contribute to a pension
When you’re doing self-employment, you aren’t automatically put into a company pension scheme, so you’ll have to open your own private one. It’s a good idea to take care of this early on in your career, as it’s a great way to ensure long term financial security. But it can also help to reduce your tax bill, as private pension contributions are tax free up to a certain limit.
Claim for previous mistakes
If you believe you have paid too much income tax in previous years, it’s not too late to fix the mistake. Just make a claim online and submit as much evidence as possible that you did not pay the correct amount of tax.
Use tax return software
It can be difficult to keep track of all your expenses, mileage, and receipts, and you can end up making costly mistakes. That’s why using bookkeeping software is a great idea. It allows you to track your income and expenses, send invoices to clients, and even submit your tax return.
Hire an accountant
The most foolproof way to avoid any mistakes when submitting your tax return is to hire a business tax accountant. All you need to do is give them full access to your finances and they will submit your tax return for you. As well as providing a guarantee that there will be no mistakes, they will also be able to identify any further opportunities for reducing your tax bill.