Self-Employed? Avoid These 4 Common Tax Preparation Mistakes!
Are you filing your taxes as a self-employed individual for the first time this year? If so, then the task might seem a bit daunting. After all, as a self-employed worker, you'll be subject to self-employment taxes and will also be responsible for paying your state, Federal, and local taxes yourself (rather than relying on an employer to deduct them for you). Specifically, as you prepare your taxes, there are some common mistakes you'll want to avoid.
Poor Record Keeping Throughout the Year
One of the worst mistakes you can make when you're self-employed is that of not keeping detailed records of your earnings and taxes paid throughout the year. Ideally, you should keep a spreadsheet that details your earnings from different sources from one month to the next. For example, you should be able to pinpoint exactly how much you earned from client A, client B, and client C each month.
Failure to Write Down Confirmation Numbers
As a self-employed taxpayer, you'll also have to pay your taxes quarterly. When you make a tax payment, be sure to obtain a confirmation number--either from the IRS or from your state. If you pay online, this confirmation number should be provided to you at the time of payment (just be sure to write it down), but if you pay by check, you may need to call and obtain a confirmation number.
Not Taking Advantage of Deductions and Credits
While self-employed workers are generally subjected to higher taxes than those who hold traditional W-2 positions, there are also all kinds of deductions and credits available to lessen the tax burdens on these workers. For instance, if you work out of a dedicated home office, did you know that you can deduct the percentage of your rent or mortgage that makes up your total monthly payment? Depending on the nature of your work, you may also be able to deduct cell phone bills, Internet service, and even fuel.
Failure to Report All of Your Income
Finally (and this ties back to being a diligent record-keeper), make sure that you report 100% of your income from the year. Some people operate under the mistaken assumption that they don't have to report self-employment income if it's under a certain dollar amount, but this simply isn't true. Every single dollar needs to be accounted for--even if you don't receive a 1099 from one of your clients.
To learn more about tax preparation, contact a company like Alexander & Associates CPA.