If you are self-employed, then you know how confusing preparing and filing your tax returns can be. With so many deductions and rules it is easy to miss out on tax advantages for you and your business. The tax system is very confusing even for single wage earning taxpayers, and when you throw in quarterly payments and deductible expenses filing a return can seem impossible. To help the readers of our blog we have gathered the following list of 10 tax tips for self-employed individuals.
1. Bookkeeping Software
When you are self-employed it can be easy to lose track of all your bills, invoices, checks, and receipts amongst your other business related documents. To keep on track with your bookkeeping I would suggest trying bookkeeping software like QuickBooks.
2. Keep Good Records
In addition to investing in bookkeeping software, you will also need to keep all of your receipts and other tax-related documents together. If you do not already have one, purchase a filing cabinet and designate certain folders for tax receipts and papers so you can stay prepared.
3. Business Expenses
Remember while you are making your day-to-day purchases to keep any business-related receipts. These expenses are tax deductible, and even the small meetings with colleagues at coffee shops add up! Also, taking the time to add up these receipts once or twice a month will save you a lot of time later on.
4. Quarterly Payment Reminders
Missing a quarterly payment or being late can result in a hefty fee, so being on time is crucial. By setting reminders for all four of your payments in advance you can avoid any fines and feel good about making timely payments.
5. Home Office Deduction
If you have a home office in your house or apartment, you may qualify for a home office deduction. As long as you have no other stationary place where you do business and the office is used exclusively and on a regular basis for business, you should qualify. However, the rules around this deduction can be tricky. So, if you are worry-prone, then you should probably seek advice from a professional.
6. Check in with the IRS
From time to time, check in with the IRS website to make sure you're taking advantage of all the self-employed tax breaks you can. Also, check the guidelines and rules and make sure you're doing everything correctly and legally. Having a financial advisor should be enough, but doing some of your own investigating never hurts.
7. Employ the Family
When hiring more employees, consider hiring a family member or two. This way you get to deduct their medical expenses as well as providing a valuable service to your family by keeping them employed!
8. Child Care
You can deduct childcare costs for your children, as you are self-employed and may need some help. This is an important deduction that too many self employed individuals miss out on, so make sure you take advantage of it if need be!
9. Retirement Plans
Setting up a retirement plan is not only good tax-wise, but also a great idea for saving towards your future. The SEP IRA retirement plan is designed especially for the self-employed, and taking advantage of these special programs can be very beneficial both now and later!
10. Income Deferral
Depending on your situation, income deferral may or may not be advantageous for you. If you have made a lot of revenue already this year and expect slower business next year, it may be a great idea. On the other hand, if you expect next year’s revenue to be fairly similar then there may not be any reason to defer any income.