While the employment options for retiring veterans is improving, they are still 37 percent more likely to be underemployed. Underemployment, and a drive to do something different from their veteran careers, have also driven the increase in veterans that are turning to entrepreneurship.
A recent SBA study found that veterans are 45 percent more likely to be self-employed than non-veterans. As a newly self-employed veteran, it is your responsibility to prepare and pay your tax obligations each year. However, this is also a common hurdle for veteran business owners, who often lack knowledge of the federal tax rules for self-employed veterans.
Whether you want to pursue a career in writing post-military or launch your own small business, making yourself familiar with the rules, regulations, and tricks behind the tax preparation process can do more than help you avoid federal penalties. It can help you maximize your tax breaks as a veteran employer, entrepreneur, and taxpayer.
When it comes to filing your taxes yourself, staying on top of your paperwork throughout the year is important. Self-employed veterans should keep any relevant supporting paperwork for tariff payments, including proof of income, receipts for work-related expenses, and deduction paperwork. If you choose to freelance or do additional consulting on the side of your veteran career, then you will need to fill out Form 1099-MISC. For expense deductions, receipts for health insurance payments, further studies tuition, or any qualifying interest paid is needed. Veteran business owners should also keep their tax paperwork after filing their taxes too. According to the IRS, business owners should keep their paperwork for at least three years after the filing date.
A common question asked by veteran business owners is whether there are any tax deductions or specific filing process for veteran entrepreneurs. The good news is that there is a wide range of helpful resources online to help veteran entrepreneurs with the tax filing process, including the IRS’s Tax Information For Members of The Military webpage. There are also dedicated Military taxation advisors like MilTax, which offer tailored tax advice on every issue from starting up your business to the tax implications of deployment or multiple careers.
Finally, take a look at the Veteran Entrepreneurship Portal, which was launched by the Department of Veteran Affairs to help budding veteran business owners with their needs, including tax planning for small business owners and freelancers.
While there are no dedicated tax credits for veteran business owners, there are a host of federal tax credits aimed at both veterans and small business owners that you may be able to take advantage of. For instance, in 2020 business owners in the medical, accounting, or legal field can receive a reduction if their income is more than $163,300 ($326,600 for joint filers). The deduction can be up to 20 percent and is worth looking into if you operate in any of those fields.
If you have had to retrain or upskill to launch your new career, the IRS allows veterans to apply for a lifetime learning credit of up to $2,000 per tax return. If you are a reserve officer and find yourself deployed during tax filing season, your business may be able to get a tax-filing extension (although these are granted on a case by case basis). This helps you avoid payment and filing penalties. Also, if you capitalize on the Thrift Savings Plan, you can save for retirement and reduce your tax liability at the same time.
The tax world is constantly changing, so it helps to stay abreast with any new developments. While the tax filing process can be complicated for a veteran new to the self-employment world, there is a lot of guidance available. Knowing where to go and following simple rules like those mentioned above can make it much easier to kickstart your new entrepreneurial career and the new tax obligations that may come with it.
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By Lucy Wyndham