Are you currently self-employed or are thinking of becoming self-employed and already feel daunted by taxes? You’re not alone. According to the American Psychological Association, 69% of adults attribute money to one of the sources of their stress.
However, you don’t need to be in the dark and stressed about self-employed taxes any longer. Keep reading for our short and helpful guide on five key tips for filing your taxes!
1. Income Sources
Your first step to filing taxes is doing some research on all of your self-employed income sources.
You can typically find this easily through the invoicing software you use or 1099-Misc or 1099-K forms that a client or third-party provider (such as PayPal) sends you. A paystub creator for self-employed also makes things easier.
Keep all of your documentation together in a physical folder, or scan everything and keep them on a virtual folder on your computer.
2. Deductions
You’ll also want to do research on all the tax deduction you can benefit from. However, these deductions are only applicable if they were used for business purposes alone.
Here are some common deductions it’s important to look into to mitigate what you have to pay come tax time:
- Home office
- Office space rent
- Internet and phone bills
- Meals
- Travel
- Vehicle use
- Advertising
- Business insurance
- Office supplies
- Health insurance premiums
- Retirement
It’s important that you save receipts, either physical or scanned, of all your business-related expenses. The more business expenses you subtract from your net profit on your Schedule C form, the less in taxes you’ll have to pay.
There are also retirement options for self-employed people that include a SEP-IRA, SIMPLE IRA, or Solo 401(k). By contributing to these retirement accounts, you can claim even more tax deductions.
3. Business Structure
You also need to understand your business entity and how that affects taxes for the self-employed. The majority of new business owners operate as sole proprietorships because it’s simple and requires less paperwork.
You can also do business as an LLC or S-Corp. These require more paperwork and fees, but you’ll also be safe from personal liability.
Read also: How to Know if Forming an LLC is Worth Your Investment
4. Quarterly Tax Payments
It’s recommended to pay estimated quarterly tax payments in April, June, September, and January on the 15th of each much.
It’s usually better to make these payments because if you don’t, you could be facing large fines when it’s tax time.
The Form 1040-ES, Estimated Tax for Individuals helps you determine how much in estimated quarterly taxes you owe.
5. Tax Preparers
Last but not least, if this information sounds overwhelming, you always have the option of contacting a professional.
A CPA will typically charge by the hour in order to prepare the forms for you. You can also get help tax planning, business planning, and bookkeeping for private contractor taxes.
Demystifying Self-Employed Taxes
Self-employed taxes don’t have to be an overwhelming and mystifying subject.
By keeping tracking of your income and expenses quarterly, you’ll be prepared to file quarterly estimated taxes. Remember to keep hold of receipts for business expenses so that you can use them as deductions once July rolls around.
Want to learn how to become a successful business owner? Keep reading our blog for more tips!