Although there are many benefits for of being self-employed, tax time is rarely one of them. Since you are solely responsible for the cost of your social security, which is lumped together with your self-employment taxes and you do not have an employer who automatically takes deductions from your pay, the middle of April can be a very challenging time. Fortunately, with the tips listed below, it can be a lot less stressful when it's time to deal with your tax preparation.
#1- Do Not Wait Until Tax Season
It is important to note that you do not have to wait until April 15 to file your taxes for the preceding year and frankly, you probably shouldn't. That is because you have the option to file your taxes quarterly. By doing so, you are paying the same total amount that you would when filing annually, but smaller payments are often easier to get through. You will also find that there is the possibility of being charged extra by the federal government if you do not pay your taxes four times a year, if you are required to pay.
If you made no profit after expenses and deductions, you will be allowed to file once a year as expected. Your tax adviser will be able to make specific recommendations for your filing status.
#2-Use A Simplified Employee Pension IRA
Whether your self-employment income is just a small amount of your annual income or it comprises the bulk of it, you may be able to benefit from a simplified employee pension IRA, which is also known as a SEP. It is useful because it allows you to use up to 1/4 of your income from self-employment and doing so is often tax deductible.
Determining whether or not you will be able to deduct any fees associated with the use of your SEP will depend on factors such as your income and filing status. Fortunately, that money is not taxed until you access it, although it is a good idea to speak with your accountant about information specific to your situation..
#3-Plan Ahead For Next Year
Whether you will be filing quarterly or waiting till the last minute and regardless of how many deductions you have taken, if your business continues to flourish, you will be filing taxes again. The good news is that by maintaining your tax records from this year and keeping every receipt organized from now on, you are likely to spend a lot less time with your accountant.
As part of maintaining receipts, it is also a good idea to speak with your tax specialist about changes in tax laws that could impact you. For instance, the IRS recently announced the mileage rate for the of a vehicle for business purposes went down in 2016 and you will only be allowed 54 cents per mile. Formerly it was 57.5 cents per mile.
In conclusion, filing taxes does not have to be a miserable time of frustration and destitution. By applying the above tips, you can make filing your taxes as a self-employed person much easier.
Share8 July 2016
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.