Business Tax information Articles
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5 Important Tax Tips for the Self-Employed
Freelancers and independent contractors face unique challenges during tax season. Here are some quick tips to better manage the process and maximize your deductions.-
Tax season: Two words that can strike fear into the self-employed. Whether you did a few extra freelance gigs on the side or manage your own business, self-employment adds additional layers to income tax filing that can feel overwhelming.
Here are some quick tips to help you understand and better manage the process, and maybe even help maximize your deductions.
1099s, Schedules C & SE, Oh My!
Independent contractors and freelancers receive an end-of-year tax document from clients called a 1099. There is nothing withheld from a standard 1099: freelancers are responsible for their own self-employment and social security taxes.
Any client who paid you more than $600 in the last calendar year owes you a 1099 (you generally send in a W-9 form when you are hired by the client to give them the info they need to later generate the 1099). Even if they fail to send one, you are responsible for reporting your full income — even freelance gigs.
Self-employed filers also must fill out Schedule C and Schedule SE forms to document their income, expenses and deductions.
Special Taxes, Special Solutions
If you’re swimming in 1099s and itemized deductions, it may be worth hiring a tax professional to help you sort through the freelance tax muck and maximize every potential credit and deduction. Some accountants and tax preparers even specialize in particular industries, such as creatives, tech or home services.
If that’s out of your budget or you have less of a paper stack, popular online tax preparation tools like TurboTax offer special editions geared just for freelancers and small businesses. These make sure to ask all the right questions and guide you through the process in a more tailored way.
In a perfect world, you paid your quarterly estimated taxes this year — if you made more than $1,000 of self-employment income. And estimated tax payment is just what it sounds like: You estimate the amount of taxes you’ll owe and break it into quarterly payments throughout the year (using Form ES-1040) so you’re not left with a major tax bill on April 15.
If you haven’t done so, it’s not too late. You may be subject to a penalty — and paying your quarterly taxes in one lump sum versus four advance payments — but it is possible to pay what you owe all at once when you file.
Maximize Those Deductions!
Independent contractors and freelancers can claim valuable tax deductions, if they qualify. Mileage from a car used for business, home office expenses, and even a portion of the rent or mortgage interest, property taxes, health insurance premiums and utilities, computer, internet, phone and business-related meals can be deducted. Money spent on advertising, subscriptions and licenses, and professional development are also largely deductible.
While it won’t help freelancers this year, many professionals recommend accruing future tax savings (and retirement savings) by setting up a Simplified Employee Pension, or SEP IRA, which reduces your taxable income even as you bank money away for the future.
What to Do If You Owe
Many freelancers and independent contractors unfortunately may find themselves stuck with a surprisingly high tax bill. (Attend any networking event for self-employed pros in the spring and listen the horror stories fly!)
If this happens, don’t panic. Filing an extension doesn’t delay the payment due date, it only gives you extra time to file. But the IRS is surprisingly willing to negotiate monthly tax payment plans to fit your budget. If this happens, it may be worth taking your returns to a tax professional for a second look to make sure they can’t improve your situation — and to plan better for next year.
May your tax bill be mini and your deductions mighty!
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The list below are Business TAX Articles. All are available for you.
There were some changes ot the deductions available for small businesses but they are not covered here. However, the articles here do cover much of what is still valid for businesses.
If you have specific questions covered here, please email us your questions with the adjoining form. We will try to respond to you within 1 to 3 business days.
Our firm provides the information in these articles for general guidance only, and does not constitute the provision of legal advice of any kind. The information provided herein should not be used as a substitute for consultation with us for tax, or accounting advice. We provide no, legal, or competent advice on other matters. Before making any decision or taking any action, you should consult a professional adviser where you have provided them with all pertinent facts relevant to your particular situation.
Tax articles in these articles are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
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