Doing your taxes when you work for yourself can get complicated. Here are the top ten tax tips for the self employed that you should know!
The Top 10 Tax Tips For the Self Employed
When self-employed, filing taxes the right way is essential. If you own a business or work as an independent contractor, you will need to file taxes at the beginning of the new year.
When you fail to file, it will catch up with you, and the IRS will expect you to pay everything you owe over the years. If you would much rather stay in good standing with the IRS, check out these helpful tips for the self-employed.
1. Keep Track of Your Earnings
Always keep track of your earnings. One of the worst things to do is not track how much you receive from your sales. If you wait until the last minute to start keeping track, you will need to go back through all the payments you received to add them up and get your total for the year.
It is time-consuming when you wait until the last minute, but it is a lot easier when you keep track from the beginning. You can use different tools to make tracking expenses a lot less stressful. Some of the options include:
Having a bank account that you use solely for business-related purposes
Getting paid through PayPal or Venmo (tracking expenses is easy to do with this payment methods)
Use accounting software to keep track of weekly earnings
There is no reason not to track your daily, weekly, and monthly earnings with these options.
2. Get 1099-MISC or 1099-NEC Forms When Applicable
While this does not apply to you when running a business of your own, you should receive a 1099-MISC or 1099-NEC form from anyone who has paid you at least $600 for work provided.
Independent contractors often receive these forms when they have provided services without working for someone as an employee. Having these forms makes the process of filing taxes that much more straightforward.
The form will include the amount you earned, your social security or EIN, and the payee’s social or EIN.
3. Keep Track of Your Business Expenses
Keep track of any business-related expenses and store your receipts in a folder to have as proof. Your business expenses may include gas for your vehicle, the cost of the internet bill, and inventory costs.
If you are not sure what qualifies as business expenses, perform a quick search on Google to get an idea or talk to a certified tax preparer. The tax preparer will let you know what types of business expenses you can claim when filing your taxes. Claiming these expenses is ideal because it can help lower the amount of money owed to the IRS.
4. Understand the Tax Deductions
You should know more about the tax deductions that you can receive to decrease the amount owed to the IRS. It is even possible to get a refund from the IRS, but it all depends on your situation. Some of the deductions that you may qualify for include:
Cost of Internet
Cost of Phone Bill (If the phone get used for business purposes)
Cost of a Health Insurance Plan
Business-Related Travel Expenses
These are just a few of the many deductions that a tax preparer can go over with you when helping you file your taxes. You should only claim these deductions if they pertain to your self-employment situation.
For example, if you drive for a rideshare service, you can deduct gas, vehicle maintenance, and other travel expenses from what you would owe. If you have a home office and work solely from home, you can deduct the cost of your Internet and similar expenses.
5. Make Quarterly Tax Payments to Avoid Owing
You may owe money to the IRS at the end of the year because the money you earned was not initially taxed. If you would like to avoid paying a lump sum of money after filing your taxes, find out more about making quarterly tax payments.
While this does not apply to everyone, a tax preparer can let you know if you should make the estimated quarterly tax payments to save money and avoid late fees on taxes owed.
6. Work With a Professional Tax Preparer
If you feel like the filing process is challenging, it helps to hire a tax preparer. When you do not know much about deductions or tax credits that you can claim, work with an experienced tax preparer who can assist you.
The preparer will review your documents, including 1099 forms, bank statements, and receipts. After reviewing the documents and going over other important information with you, the tax preparer can walk you through the filing process. The goal is to make sure you owe less or possibly even get more back in the form of a refund from the IRS.
7. Find Out About the Benefits You Can Claim on Your Taxes
Gather more information about the types of benefits you can claim on your taxes. Each person has a unique situation, but you may qualify for some of the following benefits when filing taxes:
Earned Income Credit
Child Tax Credit
Working Tax Credit
Besides these three tax credits, there are plenty of others that may apply to your specific situation. These credits can drastically increase your refund or lower the amount owed to the IRS.
8. Consider E-Filing When You Complete Your Taxes
Save time and complete the filing process at a quicker pace when e-filing. While the traditional route involved filing taxes manually and mailing them out to the IRS, it is a dated system that can take weeks or even months.
If you would like to get things done faster and possibly get a refund a lot sooner, you should e-file. Even if you choose to file with a tax preparer, the preparer can e-file your tax forms instead of doing them via snail mail.
9. Make a Charitable Donation During the Tax Year
You can make multiple charitable donations throughout the year to do a good deed and get a tax break. Not sure what to donate? Consider going through your closet and looking for things you no longer wear or need.
Collect the items in a bag or box and take them to your local Salvation Army. Make sure to ask for a receipt to have as proof of the donation. You can keep it in your records and use it as a tax deduction to pay much less in taxes.
10. Contribute to Your Retirement Account
Did you know that contributing to your retirement account is a good thing when filing your taxes? If you contribute to the account at any specific time throughout the year, you can get a tax credit for it. You will benefit from saving money for your future.
With these helpful tax tips, you no longer have to stress the idea of filing taxes as a self-employed individual. There is plenty of help available. If you need extra assistance, work with a tax preparer who can make sure you get your taxes done correctly.
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