The only way to reduce this tax is to reduce taxable income. Regular deductions suchas the standard deduction won’t reduce this tax. Neither will health insurance costs or in-
dividual 401-K or SEP-IRA contribution deductions. Fortunately, half of the self-employ-
ment tax can be deducted, thus helping to reduce taxable income.
Sales Taxes
The sales tax question is something like herding cats or pushing a rope. In the U.S., each
state has its own sale tax requirements, and you should contact your state’s sale tax de-
partment and certainly consult with your accountant. According to the National Retail
Federation, forty-five states and 7,500 cities, counties, and jurisdictions impose sales
taxes. Paying your accountant fees is starting to sound like a very good investment at this
point. Their advice and recommendations can save you lots of headaches when you sell
CDs, merchandise and other products.
You have the ancient Egyptians to thank for all this. They imposed the first recorded
sales tax on oil. The Greeks thought it was a great idea and also started doing it. But it
was the Romans who spread the practice throughout Europe.
If you happen to be in a position where you must charge sales tax, you’ll more than
likely need to obtain a license. When you do that, you become an official tax collector
with no direct benefit to your business. Such is the life of the small business owner.
Nonetheless, collect you must. Be sure to review all your sales tax questions and con-
cerns with your accountant. I can’t stress that enough. You don’t want the taxman knock-
ing at your door.