How to Legally Pay Less Taxes in Affiliate Marketing
You can make high profits in affiliate marketing, but one day you might feel you are losing it all after paying all the related taxes.
Here are some experience-based tips for all affiliate marketers, who want to pay less taxes in the U.S. legally.
How Does Taxation Works For Affiliates?
If you are an affiliate marketer, you are considered self-employed, that's why you have to make the right calculations and pay your taxes. Every year the quarter deadlines may vary.
Yet, the most bothering thing is that you have to calculate your taxes for the entire year in advance. It depends on your gains at that moment. It’s impossible to hit the bull’s eye, so:
- You will overestimate in the 1st and 2nd quarters, overpaying to the IRS, so with no money your best affiliate marketing campaigns will die. To get your money back, you will have to idle for a year.
- You will underestimate taxes, as out of the blue your campaigns become a success so you will have to catch up.
Note, that when earning gains as an affiliate, you will have to pay taxes for future Social Security and Medicare advantages. This tax makes up 15.3% of your profits.
Be Careful As It Comes To State Taxes
For example, the tax charge in New Jersey can make up more than 12% of your revenue to the state and municipal gov’t. So do research before you start.
As you’re self-employed, everything’s up to you. But you should never lag behind as it will cost you more. You may get a penalty or face the seizure of your properties and even an arrest.
Finally, Here’s How To Pay Less Tax Legally
1. Move to a state with lower or NO taxes
Here’s a handful of examples of states with NO income taxes: Alaska, Texas, Tennessee, Washington, Florida, as well as others.
2. Home office deduction
Self-employed people usually work at home. The IRS allows them to take a home subtraction in that case. Here are some options for you to choose:
- Simplified method. You will deduct $5 for every square of your apartment that you use for your entrepreneurship. Note several cons: If your property is high-priced, your abatement won’t be high; you can’t deduct devaluation of your real estate).
- Regular method. You can write off a % of your rent/mortgage equal to the proportion of your working room to the size of the rented estate. This option is more difficult to manage but it’s worth it – dozens of dollars saved!).
You should be careful with home deduction as it’s a red rag for an audit. Do not abuse the possibilities as IRS will come to you and measure the office space. Also, make sure your other taxes are white.
3. Think about your costs
As an affiliate marketer, you have to pay for analytics software, traffic sources, hardware, etc. You can deduce all of them.
4. Write off the money you lose in your business
If you had years when you lost income because of being a newcomer, you can also slightly cut down your tax bill. It is called tax loss carryforward, and it allows you to deduct losses to no more than two decades in the prospect.
5. Subtract individual health care expenditures
You can do that as an individual entrepreneur on top of writing off up to $3,400 you put in a health thrifts account.
6. Create an S-corp
This way you will save as dividends, not likewise wages, are not subject to FICA taxes.
7. If you travel, think about using Foreign Exclusion Income Act
If you spend up to 330 days/year abroad, you can cut your taxes under the act mentioned above. But note, you will have to pay taxes in the country where you stayed.
8. Enhance retirement savings
If you don’t have employees, you can use SEP IRA and contribute no more than $54,000 a year for retirement (and no more than 25% of salary).
9. Hire a professional
To make everything smooth, consider getting an excellent accountant.
10. Plan in advance
Don’t sit back until April to start arranging your tax-related stuff. Some affiliates give out on taxes 50% of their income, don’t be like them! Make tax projecting a year-long project.