Determine your standard deduction as a taxpayer to prevent paying more taxes than required. With a standard deduction, the Internal Revenue Service (IRS) enables taxpayers to lower their taxable income by a predetermined dollar amount. This implies that if you choose to take standard deductions, you are not required to itemize your deductions for things like charity contributions, state and local taxes, mortgage interest, and medical costs.
Every year, the IRS typically modifies the standard deduction amounts. The standard deduction will change in the upcoming years, though. The standard deduction will increase to $12,800 for individuals and $25,600 for married couples filing jointly as of 2023. Your standard deduction will vary if you’re a freelancer or self-employed person depending on your tax situation, income, and expenses Clevopa71.
It can be challenging to figure out your standard deduction if you don’t have the essential information and expertise. Your finances may suffer if you select the incorrect standard deduction or fail to claim the appropriate conclusions. Fortunately, there are some simple methods to figure out your standard deduction, which we’ll review in this article.
A Standard Deduction is what?
The IRS permits you to deduct a specific dollar amount from your adjusted gross income as a standard deduction (AGI). The AGI is the total of your taxable income minus pretax deductions like traditional 401(k) contributions and HSAs. This includes all your income from wages, salaries, self-employment, retirement plans, and investments.
According to your filing status, age, and level of blindness, your standard deduction will vary. In addition, the IRS permits taxpayers to claim basic deductions as an alternative to itemizing them.
The standard deduction amount may change every year, as we have indicated. In addition, the Tax Cuts and Jobs Act (TCJA) of 2017 substantially influenced standard deductions, adding complexity to the situation. For example, the law suspended personal and dependent exemptions until 2026 and significantly quadrupled standard deductions for all filing statuses.
Your Typical Deduction Calculation
Taxpayers must figure out their standard deductions to avoid paying too much. If you’re a freelancer or self-employed, maximizing your tax savings and filing taxes may present some difficulties. However, you may quickly determine your standard deduction by following these simple steps:
Determine Your Filing Status
Determining your filing status is the first step in calculating your standard deduction. Your marital status often decides your tax status as of the end of the year or, if you are a widow, the year you lost your husband.
The following five filing states are available:
1. One-sided
2. Couples filing jointly
3. Married filing separately, third
4. The family’s head
5. Widow(er) with dependent child who qualifies
Your filing status affects your standard deduction and the amount of income you must pay taxes on.
Make a Gross Income Calculation
Your gross income is the sum of all the money you made throughout the tax year, including tips, self-employment income, wages, and salaries. Add up all the pretax income you received during the tax year to determine your gross income.
Your taxable income, which you will be taxed on, is calculated starting with your gross income. Therefore, the gross income of your household should be calculated by adding your gross income and that of your spouse if you are married.
Add Your Exemptions and Deductions
The next step is to deduct your deductions and exemptions from your gross income. The IRS permits you to deduct certain costs during the year from your taxable income on your IRS 1040 form.
Investment costs, company expenses, medical costs, charity contributions, and state and local taxes are a few examples of deductions. However, in most situations, standard deductions replace itemized deductions.
On the other hand, for each personal exemption you list on your tax returns, the IRS permits you to deduct a certain amount from your taxable income as an exemption. The TCJA of 2017 did, as we already indicated, suspend personal and dependent exemptions until 2026.
Your Standard Deduction: Calculate It
Finally, check the IRS updates on standard deductions to determine your standard deduction. As we have discussed, common beliefs differ from year to year and are also based on your filing status.
According to the IRS, the standard deduction for single taxpayers will be $12,800 in 2023, while it will be $25,600 for married couples filing jointly.
How to Save the Most Money on Taxes as a Freelancer
To maximize their tax savings, freelancers and other self-employed people must plan carefully and maximize deductions. You can optimize your tax savings by using the following tactics:
Keep Tabs on Your Costs
Maintaining accurate financial records of all your business expenses is crucial if you work as a freelancer. You may maximize your tax savings and establish which tax-deductible costs by tracking them.
1. Take deductions
You can write off charges for your home office, travel, office supplies, and equipment-related fees.
2. Use an accounting program
As a freelancer, investing in accounting software saves you time and effort from maintaining significant financial records manually. In addition, accounting software is an excellent resource for keeping track of your spending, sending invoices to customers, and producing reports.
3. Use all available tax deductions
You can use a variety of tax deductions as a freelancer to reduce your tax liability. Marketing and advertising costs, phone and internet service fees, and costs associated with professional development are some examples of deductible expenses. You can even deduct cryptocurrency losses.
4. Make retirement account contributions
You can reduce your taxable income and ensure your financial future by contributing to retirement accounts like a SEP IRA or Solo 401(k). Depending on the type of account, these offers provide high contribution caps, tax-deferred growth, and potential tax deductions.
Conclusion
An essential part of filing taxes as a freelancer or self-employed person is figuring out your standard deduction. In addition, you should keep track of your spending, use accounting software, take advantage of all tax deductions, and contribute to retirement accounts to maximize your tax savings. To avoid paying more taxes than necessary, remember that basic deductions and tax laws are subject to annual modification.
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