7 Tax Tips for Freelancers, Self Employed and Small Business Owners

Jun 22, 2023

Tax season can be stressful for all kinds of businesses, but the self-employed and small business owners face especially tricky challenges. With constant changes to the tax code and the complexity of filing self-employment taxes, it can help to take regular steps throughout the year to make sure you're on the right track. Here are seven tax tips for freelancers, self-employed and small business owners that can help.

Use an Accounting System

Keeping track of income, expenses, and other financial matters is one of the most basic parts of filing taxes, but it can be difficult if you're not organized. A good accounting system can help you stay organized throughout the year, ensuring you're ready when it's time to file taxes. Plus, if you find yourself audited, organized records will be essential.

Check with your tax adviser for advice on which system best fits your needs. Online accounting systems may be the best choice for freelancers or small business owners who can manage their own accounting needs without the help of a professional. For those who need a little more help, hiring a virtual assistant or accountant experienced in tax preparation can help you organize records and get the most out of deductions available.

Track All Expenses

One of the best ways to reduce taxes is to take advantage of the deductions available to you. One of the most important tips for freelancers and small business owners is to track all expenses throughout the year. Keep track of business-related purchases such as office or travel expenses, employee or contractor payments, business meals, and other expenses.

You should also keep track of items you may use for both business and personal reasons, such as your cellphone or car. If any portion was used for business, you can deduct a portion of these expenses. Be sure to keep all receipts and set up a separate account from your personal account to avoid confusion when it comes to filing taxes.

Stay on Top of Tax Payments

Paying estimated taxes throughout the year is important for self-employed people who don't have taxes withheld from their paychecks. Paying taxes late means more than just penalties; you'll also have to pay interest on the amount owed.

If you have an irregular income or find yourself making more money than you expected, use the IRS' tax calculator to re-figure your estimated payments. It's better to be safe than sorry when it comes to taxes—paying more than is due might seem annoying, but it means you won't have to pay any penalties or interest later on.

Explore Your Options for Retirement Savings

Retirement planning is important for everyone, but even more so for self-employed or small business owners. Besides having to invest more in order to save enough for retirement, the self-employed need to choose their plans carefully to make sure they get all the deductions possible.

There are several options available for self-employed people, including SEP IRAs, traditional IRAs, SIMPLE IRAs, and Solo 401(k)s. The best option will depend on your income, tax rate, and how much you can put away into retirement. Talk to an accountant or financial adviser for advice on which plan is right for you.

Learn About Tax Credits and Deductions

This is one of the most important tips for small business owners, and it involves learning about all the available credits and deductions for your particular business. Are you eligible for credits for hiring people from certain demographics?Or are the new green initiatives available for your industry?

Taking advantage of available credits and deductions can significantly reduce your taxes, so it's important to do your research. Even if certain credits and deductions don't apply to your business, learning what's available can also help you plan ahead and structure your business activities to take full advantage of them in the future.

Be Aware of State and Local Tax Rules

Many freelancers and small business owners forget that state and local taxes may apply to their activities. Depending on where you do business, you may be liable for sales taxes, property taxes, income taxes, and more.

You must research all the local and state rules for your business and make sure you are compliant. Avoiding taxes can lead to large fines and penalties, so it's important to stay informed of the rules applicable to your business.

Plan Ahead for Tax Returns

You can save a lot of stress in tax season by planning ahead. Take the time now to figure out what deductions and credits you can take advantage of, as well as how much you should expect to pay in taxes. Taking this proactive approach can help you better prepare for filing taxes and make the process much smoother.

Consult With a Tax Professional

Finally, one of the best tips for freelancers and small business owners is to consult with a tax professional. An accountant or tax adviser can help you make sure you're taking advantage of all available deductions and credits, as well as help you structure your business to minimize taxes.

Plus, a professional can help you stay in compliance with the various laws applicable to your business. It may cost you an initial set up fee, but you may find that the money you save from the advice and deductions more than makes up for it.

Taxes can be complicated for self-employed and small business owners, but taking regular steps throughout the year can help make it much easier. From staying organized to taking advantage of deductions, these seven tips can help make the process much smoother. Talk to a tax professional for personalized advice and advice on the best options for your individual circumstances.

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