At the end of the tax year, most self-employed individuals try to minimize their self-employment tax liability by saving their receipts for business-related activities. After all, a self-employed taxpayer will owe 15.3% on their earnings from self-employment or Social Security and Medicare taxes. After you calculate your net earnings from self-employment, multiply it by the self-employed tax rate and you'll see how much you'll owe Uncle Sam.
If you are concerned with how much you'll owe, don't worry.
The team at Bonsai organized this self-employed tax deductions worksheet (copy and download here) to organize your deductible business expenses for free. Simply follow the instructions on this sheet and start lowering your Social Security and Medicare taxes.
Note: If you want to skip out on manually recording/organizing your business expenses, try Bonsai Tax. Our tax deduction finder would scan your credit card/ bank statements to find all the tax write-offs you qualify for and help you save thousands of dollars. In fact, users typically save $5,600 from their tax bill. Claim your 14-day free trial here.
Here's a shortlist of business-related expenses self-employed individuals can claim to lower their tax bills.
Read here for more deductions small business owners qualify for. You'll discover what exactly counts as a business expense.
In order to lower your gross income, you'll need to show the IRS proof that what you spent money on was actually for work or to complete your services/job. The IRS can still audit you a couple of years after your tax filing date if they recognize any red flags in the deductions you claim. This is why you want to be certain that what you deduct is reasonable for your profession or job.
The IRS has kept up with the changing time. Credit card statements will count as records for your tax write-offs.
You don't want to get struck by an IRS tax audit with no receipts. This can lead to unnecessary fines and penalties.
Note: If you want an automatic way to track your tax write-offs and avoid any IRS penalties for not having receipts, try Bonsai Tax. Our tracking services scan your bank/credit card statements to track and organize all of your potential tax write-offs. Users typically save $5,600 from their tax bill. Try a 14-day free trial of our services today.
Self-employed individuals or independent contractors using their home for business purposes can claim a deduction for a home office on their personal income tax return.
The general rule or requirement for deducting home office expenses is if you use a section of your place of residence as the principal place of business, and a place where you use regularly/exclusively for work.
There are two methods for claiming the home office deduction. You can opt to take the simplified method (calculated by your home office's square footage) or the actual expense method. With the actual expense method, you'd have to record all your direct/indirect expenses instead of measuring the square foot of your home office.
Before we get into all the business expenses that would qualify for, you can track your office costs with our worksheet for home office actual expenses. Here are some direct and indirect office expenses you can track to lower your income tax bill.
Note: The team at Bonsai is here to help you maximize your small businesses deductions. Our expense tracker can help you automatically record and organize your tax deductions for you by scanning your bank/credit card statements. In fact, users typically save $5,600 from their tax bill. Try a 14-day free trial today.
Miles driven for business travel can lead to a giant tax write-off. Even if you use your personal car for business activity, you can claim the related expenses for the business use of your car.
Just like the home office deduction, there are two methods self-employed individuals can use to deduct vehicle expenses: the standard mileage rate and the actual expenses method.
The IRS has a mileage rate every year you can use to claim miles you drove for business. All you need to do is track your business miles, and multiply it by the IRS's mileage rate. The mileage rate in 2022 is 58.5 cents.
Try our template for business mileage tracking to record your miles.
If you opt to claim the actual expense method, here are some deductions you can record.
If you are a small business owner, sole proprietor, or independent contractor, you have to understand one thing. The less business income you earn, the fewer taxes you'll pay. Period. Use this sheet to carefully record all your write-offs and lower your tax liability.
However, if you want to skip out on the headache of manually recording your receipts, try Bonsai Tax. Our app would scan your bank/credit card records to locate all the deductions you qualify for and help you maximize your tax savings. Our users save $5,600 from their self-employment taxes. Try a 14-day free trial today.
A verbal contract (formally called an oral contract) refers to an agreement between two parties that's made —you guessed it— verbally.
Formal contracts, like those between an employee and an employer, are typically written down. However, some professional transactions take place based on verbally agreed terms.
Freelancers are a good example of this. Often, freelancers will take on projects having agreed on the terms and payment via the phone, or an email. Unfortunately, sometimes clients don't pull through on their agreements, and hardworking freelancers can find themselves out of pocket and wondering whether a legal battle is worth all the hassle.
The main differences between written and oral contracts are that the former is signed and documented, whereas the latter is solely attributed to verbal communication.
Verbal contracts are a bit of a gray area for most people unfamiliar with contract law —which is most of us, right?— due to the fact that there's no physical evidence to support the claims made by the implemented parties.
For any contract (written or verbal) to be binding, there are four major elements which need to be in place. The crucial elements of a contract are as follows:
Therefore, an oral agreement has legal validity if all of these elements are present. However, verbal contracts can be difficult to enforce in a court of law. In the next section, we take a look at how oral agreements hold up in court.
Most business professionals are wary of entering into contracts orally because they can difficult to enforce in the face of the law.
If an oral contract is brought in front of a court of law, there is increased risk of one party (or both!) lying about the initial terms of the agreement. This is problematic for the court, as there's no unbiased way to conclude the case; often, this will result in the case being disregarded. Moreover, it can be difficult to outline contract defects if it's not in writing.
That being said, there are plenty of situations where enforceable contracts do not need to be written or spoken, they're simply implied. For instance, when you buy milk from a store, you give something in exchange for something else and enter into an implied contract, in this case - money is exchanged for goods.
There are some types of contracts which must be in writing.
The Statute of Frauds is a legal statute which states that certain kinds of contracts must be executed in writing and signed by the parties involved. The Statute of Frauds has been adopted in almost all U.S states, and requires a written contract for the following purposes:
Typically, a court of law won't enforce an oral agreement in any of these circumstances under the statute. Instead, a written document is required to make the contract enforceable.
Contract law is generally doesn't favor contracts agreed upon verbally. A verbal agreement is difficult to prove, and can be used by those intent on committing fraud. For that reason, it's always best to put any agreements in writing and ensure all parties have fully understood and consented to signing.
Verbal agreements can be proven with actions in the absence of physical documentation. Any oral promise to provide the sale of goods or perform a service that you agreed to counts as a valid contract. So, when facing a court of law, what evidence can you provide to enforce a verbal agreement?
Unfortunately, without solid proof, it may be difficult to convince a court of the legality of an oral contract. Without witnesses to testify to the oral agreement taking place or other forms of evidence, oral contracts won't stand up in court. Instead, it becomes a matter of "he-said-she-said" - which legal professionals definitely don't have time for!
If you were to enter into a verbal contract, it's recommended to follow up with an email or a letter confirming the offer, the terms of the agreement , and payment conditions. The more you can document the elements of a contract, the better your chances of legally enforcing a oral contract.
Another option is to make a recording of the conversation where the agreement is verbalized. This can be used to support your claims in the absence of a written agreement. However, it's always best to gain the permission of the other involved parties before hitting record.
Fundamentally, most verbal agreements are legally valid as long as they meet all the requirements for a contract. However, if you were to go to court over one party not fulfilling the terms of the contract, proving that the interaction took place can be extremely taxing.
So, ultimately, the question is: written or verbal agreements?
Any good lawyer, contract law firm, or legal professional would advise you to make sure you formalize any professional agreement with a written agreement. Written contracts provide a secure testament to the conditions that were agreed and signed by the two parties involved. If it comes to it, a physical contract is much easier to eviden in legal circumstances.
Freelancers, in particular, should be aware of the extra security that digital contracts may provide. Many people choose to stick to executing contracts verbally because they're not sure how to write a contract, or they think writing out the contract terms is too complicated or requires expensive legal advice. However, this is no longer the case.
Today, we have a world of resources available at our fingertips. The internet is a treasure trove of invaluable information, platforms, and software that simplifies our lives. Creating, signing, and sending contracts has never been easier. What's more, you don't have to rely on a hiring a lawyer to explain all that legal jargon anymore.
There are plenty of tools available online for freelancers to use for guidance when drafting digital contracts. Tools like Bonsai provide a range of customizable, vetted contract templates for all kinds of freelance professionals. No matter what industry you're operating in, Bonsai has a professional template to offer.
A written contract makes the agreement much easier to prove the terms of the agreement in case something were to go awry. The two parties involved can rest assured that they're legal rights are protected, and the terms of the contract are sufficiently documented. Plus, it provides both parties with peace of mind to focus on the tasks at hand.
Bonsai's product suite for freelancers allows users to make contracts from scratch, or using professional templates, and sign them using an online signature maker.
With Bonsai, you can streamline and automate all of the boring back-office tasks that come with being a freelancer. From creating proposals that clients can't say no to, to sealing the deal with a professional contract - Bonsai will revolutionize the way you do business as a freelancer.
Why not secure your business today and sign up for a free trial?