Retirement deductions for the self-employed are important for a number of reasons. These deductions help you save on your current tax bill but also accumulate an amount of money for your future retirement. If you are self-employed with a second freelance job and work a steady regular job at the same time, you are allowed to contribute to both an employer sponsored retirement plan, such as a 401k, and also a SEP-IRA.
SEP-IRA For Self-Employed
A SEP-IRA can only be used by those individuals who are self-employed by performing freelancing or consulting work or for those individuals who receive the form 1099 from their "employers" while performing temporary work, such as when working for a temp agency. You can shelter some of this income from taxes by depositing an amount into this SE-IRA. Be mindful of the limits that are allowed since theoretically you could deposit all of your self-employed income into the SEP-IRA; however, there is a maximum amount you will receive credit or a deduction for.
Advantages and Disadvantages for the Self-Employed
Being self-employed has some advantages and disadvantages. Advantages include the freedom of making your own hours and not having to answer to a boss. Disadvantages include having to juggle time, bookkeeping duties and performing tax estimates quarterly. Some localities require you to deposit an amount with them throughout the year during four quarters. This requires estimating your tax bill before April 15.
It is advisable to research this process and/or consult a tax preparer or CPA. Since these taxes can be quite high, it is beneficial to lower your tax burden while preparing for retirement by participating in a SEP-IRA. This is recorded on the IRS tax forms and your state itemizations.