Tax-related tasks rank amongst the most dreaded and time consuming chores for small business owners and freelancers alike. It can be hard to stay on top of the constantly changing regulations, filing deadlines and payment requirements while still growing and managing your business.
To help reduce your tax headaches and ensure you take full advantage of possible tax benefits for freelancers, self-employed professionals and small businesses, here are 7 key tax tips to keep in mind:
1. Understand Expenses & Deductions
One of the most important things to understand when it comes to taxes is exactly which expenses and deductions you’re eligible for. This means taking the time to learn about the various deductions you’re eligible to take for things such as office supplies, business trips and employee benefits.
It’s also worth noting that many deductions are now only available if you can prove they are ‘ordinary and necessary’ for your business. Make sure to understand the different kinds of expenses and deductions available in your sector, and keep good records of your business purchases that you can refer to come tax time.
2. Keep Your Own Tax Records
No matter how you’re filing your taxes, it’s important to ensure that you’re keeping your own records - or, at a minimum, making sure you have copies of everything you submit to the IRS. Accurate record keeping helps to make fast and efficient work of preparing your tax returns.
Recording expenses helps to ensure that you can prove your self-employed income, and makes it easier to double check you’ve taken advantage of the right tax credits and deductions.
3. Understand the Different Filing Requirements
The process for filing taxes as a freelancer, self-employed professional or small business can be very different than for filing taxes as an employee. To make sure you’re filing the right way you’ll need to understand the differences.
For instance, a business owner might have to file required business forms such as 1065 or 1120 while freelancers or self-employed professionals will need to file a Schedule C with their other tax forms.
4. Remember the Quarterly Estimate Payments
Small business owners, and self-employed professionals, often have to make regular quarterly estimated payments based on the amount of money they’re making. Missing or late payments can result in major penalties.
Understand when and how much you need to pay each quarter - you can use your previous year's return to calculate the estimated taxes you owe for the current year. Even if you're making more or less than you did the previous year, it can give you a good starting point.
5. Track Your Mileage Deduction
If you use your car for business purposes then you may be able to deduct some of these miles from your taxes. The process for tracking miles for mileage deduction can be extensive and tedious, but it can pay big dividends.
You’ll need to track both business and personal miles separately, as only business miles are eligible for tax deductions. Be sure to track when, where, and for what kind of driving you use your car - and be sure to maintain accurate records.
6. Organize Your Invoices & Receipts
As a self-employed professional or a business owner, you’ll need to keep your invoices and receipts organized in order to prove which expenses can be deducted from your taxes.
Before filing your taxes, be sure to go through all of your invoices and receipts; documenting your income and costs as accurately as possible. Then, make sure to save your documentation of income and expenses - such as any software or digital records - to your computer or a secure cloud.
7. File & Pay On Time
Finally, be sure to always file and pay your taxes on time. If you don’t think that you can file your taxes on time, you can file a request for an extension. An extension will give you an extra 6 months to file, however, it doesn't extend the payment of your taxes.
If you fail to file your taxes on time, the IRS can impose stiff penalties. Make sure you understand the official filing and payment deadlines for the forms you'll need to file, and take the steps necessary to make sure you don’t miss a deadline.
Conclusion
Taxes can be a complex and time consuming process for freelancers, self-employed professionals and small business owners alike. Understanding the key tax tips, as well as taking good records of your expenses and income, can help you to save time come tax season while taking full advantage of the many deductions and credits available for your business.
The tips provided above won’t just help you save time; it’ll also help you to save money, as you can be sure that you’re taking advantage of all the deductions available to you, so you don’t end up paying more than you should. So be prepared - take some time to understand your taxes and all the deductions available to you - and the process should eventually become less and less overwhelming.
