Are you self-employed? Do you love the autonomy of owning your own business, but hate the responsibility of managing your taxes?
Filing taxes as a self-employed person can be complicated and time-intense. But there are some tax deductions available to you that can make it worth your while.
Continue reading for tips on tax filing for entrepreneurs. Give yourself a little extra time to prepare and take advantage of the tax benefits of being self-employed!
Understand What’s Required for Self Employed Taxes
Make sure you understand all of the advantages and responsibilities of being self-employed. There are penalties for doing things incorrectly or at the wrong time. Ignorance won’t excuse you from your obligations.
Do you need to collect and pay sales tax to your city or state? Check with your local and state government to see if you need to charge customers sales tax on the products or services you offer. You will be obligated to pay it, even if you didn’t collect it.
Understand when and how to pay your quarterly estimated tax payments. Since you don’t have money withheld from a paycheck you need to pay federal and state taxes, Social Security, and Medicare yourself.
Most advisors suggest using last year’s tax amount as your estimate for the current year. Quarterly estimated payments are due on the 15th of April, June, September, and January. If you don’t pay or don’t pay enough estimated taxes you could be penalized.
How You Structure Your Business Impacts Your Taxes
You can elect to make your company a sole proprietorship, LLC, partnership, or corporation (C-Corp or S-Corp). Every situation is different, but for many entrepreneurs, a sole proprietorship is going to be the best and simplest option.
Each structure has different tax implications, liability protection, and filing requirements. For example, as a sole proprietor, you will report your business income and expenses on a Schedule C on your own taxes. Corporations will need to file their own business taxes.
Plan Income and Expenditures
Strategically plan end-of-year income and expenditures. For instance, if you need additional deductions, purchase office equipment before the end of the year. You can start depreciating it in the current tax year and include it as a business expense on your taxes.
You can decide when to put items into your inventory to have the most effect on your bottom line. Or, even delay payments from clients until the new year if you want to show less income.
Set Up A Record Keeping System
With today’s technology, software, and apps it’s easy to automate your record keeping. This can save you time and you’ll make fewer mistakes.
Register for your tax ID long sooner than later. You can give it to customers that require a W-9 form. It’s also necessary if you have employees working for your company.
Make record-keeping part of your daily routine so you don’t get overwhelmed at the end of the year. Use personal finance sites to track your expenses. Streamline your financial transactions by synchronizing your bank and credit accounts.
Tips on Tax Deductions for Self-Employed
One of the most impactful self employed tax tips is to understand what tax deductions you are eligible for and how to get them. Business deductions reduce both your adjusted grow income and the self-employment taxes you owe.
Automobile expenses are a common deduction for many self-employed people. You may be able to deduct the depreciation and mileage for the use of your car. Other possible deductions include lease payments, gas, insurance, and maintenance expenses.
Other expenses you might be able to deduct include office supplies, education and training, and business travel. Keep a record of all receipts and a detailed description of what they are for.
Depending on your business situation, you may also include deductions for the FICA taxes you pay, some costs of entertaining clients, and interest on your business debt. It’s possible some health insurance premiums or home office expenses could be deducted as well.
There’s a double impact on retirement saving programs when you’re self employed. Contributions to an IRA, SEP, or SIMPLE retirement plan are often tax-deductible. Plus they may lower your income and the amount of taxes you owe.
For those who are sole proprietors, you can deduct contributions to these accounts from your personal income. For many a lower income level could have a significant impact on the amount of taxes they owe.
Whereas if your business entity is a corporation those contributions are recorded as a business expense. Including these expenses will show a lower profit to the company and could lessen the amount of taxes owed.
Use a Professional for Tax Filing and Advice
Your best resource for your business taxes is a professional certified public accountant (CPA) and tax lawyer. The laws change every year, so find a team that specializes in self-employed businesses. They’ll have the most up-to-date information to keep you on the right track.
They will help you determine which business entity is right for you and how it can positively impact your tax obligations. They will also help you determine what deductions your business can take.
They can help you file your yearly taxes. Or, if you forgot to file 1099 forms or need to amend your taxes, they can take you through that process as well. Surround yourself with the right people to help you stay on top of your business taxes.
Tax Tips—2020 and Beyond
As a self-employed entrepreneur, you are already wearing many hats. Make tax filing easier for yourself by creating a plan and staying organized throughout the year. Use these tips on tax deductions and setting up your business to maximize your savings and minimize your payments.
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