By being self employed, we’re pulled in two directions. We want better income from self- employment, yet we want our self employment taxes to be as low as possible. We want our families to benefit from having a better income and all the luxuries it can buy: travel, TVs, cell phones, dining out, and more. But the more dollars in your paycheck, the more self employment taxes you are paying.
Fortunately, there are common regular and necessary expenses in your business that have a direct benefit to your family. The average employee must pay for all these items AFTER he gets his paycheck. Being self employed, you can count these items against your business and pay for them BEFORE you take your paycheck. Your self employed income will seem lower but your family gets ‘paid’ in the stuff the business pays for, building your hidden paycheck.
This hidden paycheck is part of what makes being self employed worth the effort. Many items in our daily lives are also used for business. For the purposes of tax reporting, we get to take those expenses against the business because they are necessary for running the business. Depending on your business, this adds up to a hidden paycheck of $15,000 to $25,000 a year.
Your CPA can help you figure out exactly which costs fall into the various buckets and where to report them on your tax forms. Let’s go over some examples. Better income from your hidden paycheck comes from multiples sources.
Here are the categories I used:
- Self employed health insurance
- Cell phone
- Home/business phone
- Lunches/dinners out
- Party leftovers
- Home office deduction
- Per diem meals
- Office supplies
- Auto mileage
- Computer equipment
- Telephone equipment
I’ll go into detail in Part 2, but here are some totals. Last year, my hidden paycheck amounted to $23,606. I’ll show you how I got there in Your Self Employed Hidden Paycheck – Little Things Add Up (Part 2)
What’s in your self employed hidden paycheck? Call me.