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5 Essential Tax Planning Tips for the Self-Employed
When you’re self-employed, there are a lot of things you’ll have to do on your own on behalf of your business. On the upside, you get to be your own boss, setting your preferred work hours, taking on the clients you prefer, and basically running the whole show as you see fit without a cavalcade of supervisors looking over your shoulder and micromanaging your every move. On the other hand, you’re also solely responsible for making sure you have jobs lined up, that work is being completed on schedule, and that you’re getting paid as a result. You’ll have to learn how to hustle for work and negotiate contracts. But you’ll also wear every hat in the place; you will do marketing, sales, production, distribution, and everything in between. And somewhere in there you have to squeeze in time to file your business taxes (in addition to your personal tax return). So planning is essential to making sure that everything goes off without a hitch and your business runs smoothly. Here are just a few tax planning tips that should help any self-employed person immensely.
- Save every scrap of paper. Just because “audit” is a 4-letter word doesn’t mean you can avoid it, and the best way to prepare is to keep immaculate records. In truth, you’re going to need every invoice and receipt in order to calculate earnings and claim write-offs for your business. But don’t just throw everything in a shoebox and hand it over to your accountant at the end of the year (unless you want to pay an arm and a leg for the service). Instead, get yourself an accordion file and mark sections for different categories of income and expenses. It is said that an ounce of prevention is worth a pound of cure, and this tactic will save you from hours of sifting through papers come tax time, not to mention a lot of questions should you be audited.
- Use the right software. The wonderful thing about living in the modern era is the unbridled access to computer and mobile technology, and both can provide you with software solutions to help you manage your small business expenses. For example, QuickBooks provides you with a simple, yet comprehensive system of tracking income and expenses at home, with a slew of features that will make filing your taxes easy as pie. But you might also want to consider mobile apps that could aide your cause, like the OneReceipt application that lets you snap, import, and store pics of your receipts so can virtually save originals without taking up any space.
- Consider filing quarterly. While larger business interests nearly always choose to file quarterly estimated taxes because of the benefits they gain, you don’t necessarily have to go this route if you’re self-employed. However, it is a good way to avoid paying a huge chunk of money in April that you might not necessarily have on hand, and if you slightly overestimate quarterly, there’s a good chance you’ll come out even or perhaps get money back at the end of the year.
- Know your deductibles. As a self-employed individual, the money you spend on your business could help to lower your tax burden significantly. But you need to know what you can reasonably (and legally) write off, and what is bound to raise red flags. If you need help figuring this out, especially since tax law can change from year to year, simply call the IRS for free assistance or talk to a professional.
- See a tax prep specialist. If you’re going to hire an accountant you need to make sure that you find a professional that is qualified to meet your particular needs. So look for someone with a background working with businesses like yours, or at least with self-employed individuals. This will give you the best chance to ensure that your filing is done right and that you claim every deductible you’re due. Yes, you’ll spend a little money, but the expertise of your tax prep specialist could save you a ton. And if you end up getting audited, your accountant can meet with the IRS on your behalf.