As the “Great Resignation” continues, more and more Americans are finding themselves in a new work category. That is the one of being self-employed. With this new work approach comes new freedom and flexibility. Being your own boss means working on projects that you choose, setting your own work schedule, and managing your own affairs. Part of this newfound business freedom means new responsibilities, too. One primary responsibility of the self-employed is managing and filing taxes.
Taxes are relatively standard when you work in a traditional job as an employee. With common forms and deductions, most tax handling is automated and done for you. Tax planning and compliance as a business owner can be different from filing as an employee. It can be confusing and complicated and many new self-employed workers are caught by surprise.
Tax Preparation for Self-Employed
Waters Hardy is here for all of your tax preparation needs. Whether you are transitioning to self-employment or are an experienced self-employed person looking for assistance with your taxes, we can help. We are an experienced and reliable resource if you need some advice, a consultation, or a complete turnover of all tax preparation services. Our tax experts understand the importance of proper planning and tax filing. Let’s learn more information about common tax mistakes self-employed people make so you know exactly what to avoid.
5 Tax Mistakes to Avoid While Self-Employed
1. Using Personal Accounts for Business
Don’t use your personal accounts for business expenses. Technically, you could go through your accounts and separate business expenses, but the chances of this are minimal. It’s much easier to use different accounts from the beginning.
Use Checks or Credit Cards
Paying for business expenses with cash is not tax friendly. Using checks or credit cards makes record keeping a breeze. With the growing popularity of digital tax filing, online records and statements are the quick and sure way to organize all eligible deductions.
2. Neglecting to Keep Financial Records
This requires a lot of time and effort, but keeping accurate records is critical to proper tax planning. The IRS can ask for records, including receipts for up to 6 years. Don’t wait until tax time to try to pull your receipts together. Keep up with records throughout the year with a tried-and-true leger or journal, computer software, spreadsheets, phone apps, etc.
Keep Track of Income and Expenses
The IRS requires you to keep proof of both income and expenses. Every transaction needs to be recorded. The best time to do this is in real-time. That is when you can most accurately record the type of transaction, amount of income or expense, and eligibility for deduction.
3. Not Putting Money Aside for Taxes
As a self-employed professional, it’s nice to see your income rolling in without the standard tax deductions taken right off the top of your pay. It takes some discipline to understand that you will still have to pay taxes eventually and plan accordingly. The best way to do this is by deducting money by yourself and setting it aside for the future. This will help you avoid anxiety and stress when it’s time to meet your income tax obligations.
Make Estimated Payments
If you’re self-employed and expect to owe at least $1,000 in taxes for the year, then you’re required to pay estimated taxes, also known as quarterly taxes. These are prepayments toward your final tax bill.
Estimated quarterly tax payments are due:
- April 15
- June 15
- September 15
- January 15
4. Not Knowing if You Are Eligible for Tax Deductions
One common tax mistake the self-employed make is not fully understanding all the tax advantages available to your business. It does take some time and effort to research and learn about what is tax-deductible and what is not, but your time is worth it. You could be giving Uncle Sam much more than you have to.
The following items are tax-deductible:
- Startup costs
- Subscriptions to industry-related periodicals
- Software subscription fees
- Entertainment expenses for wining and dining clients
- Business-related vehicle expenses and travel costs
- Education and training (such as conferences, training courses, and workshops that are directly related to the business)
- Promotional items and advertising
- Internet and phone service
- Interest expense
- Office equipment, such as smartphones, tablets, and computers
- Home office expenses
- Utilities such as gas, electric, water, and garbage
- A security system
- Homeowner’s or renter’s insurance
- Homeowner association fees
- House cleaning
- Repairs made to your home office
5. Not Updating your Tax Strategy
Smart tax planning for a new business is different from tax planning for an established business. If your business is growing, it’s time to reassess your tax strategy. As business changes, so do the tax implications for your company. Make sure you aren’t too comfortable with your tax strategy and be open to making changes.
Seek Professional Advice Early
Don’t wait until tax season to get to know, trust, and work with a professional tax consultant. An expert who can take their time evaluating your situation will be able to prepare a better strategic tax plan that will make the best use of all self-employed tax advantages.
Proper Tax Planning Can Save You Time & Money
While being self-employed comes with many rewards, it also comes with many responsibilities. Being solely responsible for running your business includes proper tax planning and compliance. It’s hard to be an expert in your field and an expert at managing your taxes. Reaching out to a professional tax team can pay off for your business.
File Your Self-Employed Taxes with Waters Hardy
If you’re self-employed and tax planning seems daunting to you, let the team at Waters Hardy lead the way. We have the information and resources you need to feel secure about the entire tax process, from planning and organization to forms and filing.
With our assistance, you can take control of your taxes knowing that you made every effort to limit your loss and increase your tax profit. Contact us today!