Being self-employed is an adventure, but dealing with your taxes shouldn’t be. As the end of the year approaches, it is time to get serious about tax planning.
Before you know it, the IRS will be knocking at your door, and the April 15 tax filing deadline will be here soon enough. If you want to spend less time stressing about your taxes and more time running your business, you need to think ahead. Here are 11 timely tips to help you organize your business records while minimizing your tax bill.
- Locate your quarterly payments. If you make quarterly payments to the IRS, now is the time to add up the amounts. Record the number in a safe place and get ready to enter it into your tax preparation software.
- Scan your receipts. Having all your receipts in the same place will make it easier to add up your deductions and get credit for your business-related purchases. Scanning your receipts will also keep the information safe – no more digging through shoeboxes for the receipts you need.
- Research tax law changes. The IRS code is always changing, so take some time to learn about what is different this time around. Even if you have a professional do your taxes, it never hurts to have a basic understanding of the law.
- Calculate your estimated business income. The amount you earn from self-employment will influence everything from how much you can contribute to your retirement plan to how much you will owe in taxes. Even if the final numbers are not yet in, take the time to calculate your expected earnings for the year.
- Identify overlooked deductions. Now that you know how much you expect to earn, take a few minutes to identify deductions you may have overlooked. Some deductions, like office supplies and phone service, are obvious, while others, like car washes for rideshare drivers, are easier to overlook.
- Make a list of clients. If you do more than $600 worth of business with any one client, you should receive a 1099 form from that business or individual. Make a list of the clients you have worked with over the last year, then check each off the list when you receive that 1099.
- Calculate your retirement plan contributions, health savings account contributions and other potential tax deductions. Contributing to a retirement account or opening a health savings account could lower your tax bill and trim the amount you owe. You only have so long to make these contributions, so research the deadlines and plan accordingly.
- Scan incoming documents as you receive them. If you wait until you have all your documents, you could end up feeling overwhelmed, so scan each item as you receive it.
- Set up a paper file. Scanning documents is important, but so is having a paper backup. Set up a file box for incoming documents, and file each document after it has been scanned.
- Assess your need for professional help. If your filing needs are relatively simple, you may be able to file taxes on your own. Now is the time to assess your skills and ask yourself if DIY tax filing is the right approach.
- Choose your tax preparer, or your tax preparation software. If you decide to have a pro do your taxes, now is the time to choose the right person. If you prefer the DIY approach, you still have time to choose your tax preparation software.
Whether you own a small business or just do the occasional side hustle, being self-employed can enhance your life. Unfortunately, your status as a self-employed individual can also complicate your tax situation. If you want to stress less this April 15, now is the time to get ready. The 11 tips listed above can help you get ready for tax day, so you can focus on growing your business and landing more clients.