Tax Tips for the Self Employed

Being self-employed has a lot of great benefits. One drawback, however, is the fact that taxes can be a bit complicated for the self-employed. In many cases, these individuals even have to pay a special self-employment tax.     

Even though taxes can be a burden, know that, with the right help, you can more fully understand the taxation process for the self-employed. And, the more fully you understand it, the more likely it is you’ll be able to work it to your advantage.

To take a step in the right direction, tax-wise, start by following these simple tips.

Estimate Your Income Each Year

First things first, make sure you estimate your business income each and every year.

Having an accurate idea of about how much you can expect to earn will help you to make the most beneficial tax-related decisions all year long, such as knowing which exemptions to file for.

Furthermore, when you estimate your income, you can also estimate your taxes, which gives you time to save what you’ll owe.

While you can estimate your income on your own, it’s better to do so with the help of a tax professional who can also provide advice and tax strategies to consider during the year.

Invest in Personal Finance Software

When you’re self-employed, it’s imperative that you keep detailed and accurate financial records related to your business. This will help you with your taxes, but will also be vital in the event that you are ever audited.

To make recordkeeping easier, invest in quality personal finance software, preferably the kind that can be synced to your bank account. This software, if used properly, will make tax-time so much easier and less stressful.

Choose Business Deductions when Possible

Finally, whenever you have the choice between making something an itemized deduction or a business expense, always go for the latter. Businesses expenses allow you to reduce your income and your self-employment tax, making them the smarter option in almost every circumstance.

Following these simple tips should get you off on the right foot. Really, though, it’s best to work closely with a tax professional and educate yourself as much as possible so that you can make it through self-employment taxation with ease and confidence.

Tax Tips for the Self Employed

There are a great many advantages to being self-employed. Whether you’re a freelance writer or an artist, you get to set your own hours and work in a way that is convenient for you. With that said, however, your taxes can be a bit trickier than they are for the average person who is not self-employed.   

However, even though your taxes can sometimes be tough to figure out, there are certainly some benefits. To start with, you are eligible for a great many deductions that can help to cut down on your taxes. Of course, you have to know about these deductions first, which is where having a qualified accountant on your side really comes in handy.

A good accountant can either handle all of your taxes for you or simply give you the tools and education you need to do them yourself, providing you with advice and guidance along the way. In either scenario, you will find that your accountant is a huge help. Here are just a few of the things that a skilled accountant can help you with:

l  Completing a Schedule C for business taxes

l  Completing a Schedule C-EZ for business taxes (if you qualify)

l  Calculating self-employment taxes

l  Deducting expenses for your home office, if applicable

l  Deducting business expenses

l  Helping you to find and learn to use tax software

l  Providing general tax advice and answering questions as they arise

As you can see, an accountant can be a huge asset, so, if you are planning to be self-employed in the coming months or years, make sure you have an accountant you can trust and rely on. It will make a world of difference.

What Freelancers Need to Know about Taxes

Being a freelancer of any type definitely has its benefits, such as setting your own schedule and controlling the amount of money you make. With that said, though, taxes are something that can be a bit more complicated for a freelancer than for the average person.  

When you’re a freelancer, any profit you earn through your freelancing will increase your taxable income, which will thereby increase your regular income tax and your self-employment tax. Furthermore, as your own employer, you have to pay the full amount, instead of the half that traditional employees pay, for your Social Security and Medicare taxes. Obviously, navigating all of these responsibilities, especially if you are new to freelancing, can be difficult. Fortunately, you can manage it all by following some simple advice.

Set Aside Money For Your Self Employment Tax

First things first, one thing you should get into the habit of doing is setting aside money on a regular basis, preferably once a month, to pay your self employment tax. You can get a decent idea of how much money you need to set aside each quarter by taking your estimated net profit, multiplying it by 15.3% and then dividing that into four monthly payments. As long as your estimations are decently accurate, this should prove to be an effective strategy for budgeting for your self employment tax.

Enroll in the Electronic Federal Tax Payment System

Another good tip that you can follow is to enroll in the Electronic Federal Tax Payment System. Once you register with this site, you should find it very simple to make estimated tax payments online via your checking account. This is another simple way to ensure your taxes get paid in full and that you don’t find yourself in trouble with the IRS.

While these two tips are extremely helpful, they are really just the tip of the iceberg when it comes to all that freelancers need to know. If you can follow these tips, though, and seek the help of a qualified financial adviser who is familiar with dealing with freelancers and their needs, you and your taxes should get along just fine!

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Simple Tips for the Temporarily Self Employed

Some people choose to be self-employed for the long haul, often because they love the freedom a self-employed life provides. For others, though, self-employment is just something that they do temporarily, often in order to make ends meet during a rough patch or when they’re in between jobs. These people have a whole different set of rules and information they need to know than the permanently self-employed. If “temporarily self-employed” best describes your situation or soon-to-be situation, there are a few things you should know.   

Tip #1: Have a Backup Plan

One important thing to realize as you start your journey of being self-employed is that, unlike with a steady job with a regular paycheck, being self-employed can have its ups and downs. You may have times where you’re making lots of money, followed by times where you’re struggling. Thus, it’s important never to get too reliant on any one client or type of work. Be diverse and find lots of jobs you can do to keep the money rolling in, no matter what.

Tip #2: Build Your Savings

As mentioned, there can be lots of fluctuations and “dry spots” when you’re self-employed, especially in the initial stages. Thus, consistently work toward having a sizeable savings account you can fall back on just in case. Ideally, you’d already have your savings account well-established before you strike out on your own.

Tip #3: Pay Taxes Quarterly

Finally, since self-employment taxes can be quite high, it’s often best to pay your taxes quarterly, instead of yearly, so you’re not hit with a huge amount owed all at once.  It’s also smart to consider working with an accountant during your self-employment period since figuring out these taxes and the special laws that apply to self-employment can be a challenge.

If you can follow these simple tips and seek out the help you need, you should have no problem enjoying your self-employment phase….who knows, you might even decide to make it permanent!

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