If you'll be filing taxes as a self-employed worker or independent contractor for the first time this year, you might be feeling a little overwhelmed by the process--especially if you've been used to filing a simple 1040 with your employer-issued W-2s in prior years. As you prepare to file for the first time as a self-employed worker, then there are some common myths you'll want to be aware of so you can file accurately and correctly.
Myth 1: You Can Wait to Pay Your Taxes in April
One of the biggest mistakes newly self-employed workers make is that of assuming they can simply pay all their taxes owed at the end of the year or in April of the following year, when taxes are due. Unfortunately, when you're self-employed, you generally need to pay quarterly taxes throughout the year rather than making one lump-sum payment at the end. Failing to make quarterly payments could result in you facing hefty fines and penalties when it comes time to file.
Myth 2: You Can Always Deduct a Home Office
If you have a home office out of which you conduct your business, you may be tempted to claim the IRS home office deduction. Before you do this, however, you should carefully review the requirements for this deduction and make sure you meet all of them. Specifically, understand that your home office must be a separate room of your home that's 100% dedicated to your business. In other words, you can't deduct a corner of your living room where you have your computer desk set up.
Myth 3: You Only Have to Report 1099 Income
Clients you received payment from throughout the year should provide you with 1099 statements at some point before taxes are due. These statements should summarize the total amount you were paid by that client in the previous tax year. It's important to keep your own earnings statements, however, as not all clients will provide you with a 1099 (especially if you didn't make much from them). Furthermore, understand that all income must be reported to the IRS, even if you don't receive a 1099 for it.
Myth 4: Hiring a Tax Accountant is a Waste of Money
When you're filing for the first time as a self-employed worker, things can be quite intimidating and confusing. Consider hiring a tax accountant to assist you through the process this first year so that you can ensure accuracy and avoid potential problems (such as rejected returns or audits) down the road.
Contact a professional such as Hy Appelbaum CPA for more information.
Share30 December 2015
Accounting is the absolute most important element of running a business. If you mess up the bookkeeping even the slightest bit, the entire business could be in trouble. I know how costly a small bookkeeping error can be. About three years ago, I made a seemingly small mistake in the financial records for my business and the next year when I filed my taxes, things were very bad for me. What would have required a small tax payment had suddenly turned into a big tax bill and quite a headache. Since then, I have worked with an accountant and things have been better.