Being self-employed brings a lot of benefits to the table. Setting your schedule, following your dreams, and being the boss are all common motivations, but few consider the challenge of self-employed taxes. Following are some tips to help smooth the path and have a more successful experience.
Pay Off Expenses
When possible, you should aim to have all your business expenses paid before closing your books for the year. Doing so means that you can itemize those expenses on your current tax return instead of waiting until next year.
Prepare and Itemize
Gather all documentation related to your income and expenses. You should include any receipts, logs, invoices, and bank statements.
Hopefully, you’ve been itemizing this information throughout the year and can just take a few moments to double-check your information. It’s much simpler to keep a running tab all year than to have to do it all at once. If you have not yet itemized, though, set aside the time to do so now. Then:
Make sure your information matches bank statements, receipts, and any other paperwork.
Compare it to last year’s return for any additional things to include.
Put all of your documentation into a singular, safe place.
Claim Your Deductions
Being self-employed opens the door to many tax deductions, including those for supplies, equipment, healthy insurance premiums, vehicle expenses, home office expenses, and more. After learning what’s available and what applies to you, take some time to learn how they work and how much you can claim.
The home office deduction is often a confusing one. With it, you can deduct expenses for things like mortgage interest, home insurance, rent, and even home repairs. However, you can only claim it for the percentage of your home that holds your office.
For example, if your home office takes up 10 percent of your home, you can claim 10 percent of the mortgage interest. Knowing and understanding how potential deductions work ensures more accurate tax documents and less risk of audits.
File Any 1099’s
Did you pay a website designer to get your website up and going or a graphic designer for a logo? Have you paid anyone else for providing your business with a service? If the answer is yes and you paid them $600 or more, you must file a 1099 form for them.
Make Your Payment
As you likely know, you are required to make quarterly tax payments. The last is due by January 15th. Once you close 2020’s books, you’ll have a pretty accurate idea of your taxable income for the year. By estimating the remainder of what you owe at this point, you have a much better chance of making your tax payment on time.
Fund Your IRA
Self-employed people can contribute up to 25 percent of their net earnings to their IRA. Take advantage of these tax-deductible contributions while you can.
Simplifying Finances for Freelancers and Self-Employed
Tax season is often a stressful time for the self-employed, but it doesn’t have to be. Utilizing tools like Lunafi can help you organize your income and expenses and discover tax write-offs you may be unaware of. Additionally, you can set up automations that keep you organized effortlessly. Download the Lunafi app for free and get started today.