Being self-employed comes with a set of perks and perils. In a job setup, your employer deducts taxes from your paycheck, so there's not much you have to do. But when you're self-employed, you have to do the calculations, and file taxes on time.
Here are 5 self-employed tax tips that you must implement for your business.
1. Project your earnings
As a self-employed individual, you need to have an estimate of your earnings in a financial year, right at the beginning of the year.
While projecting exact amounts may not be possible, try to come up with a logical figure.
In case you expect to be in a higher tax bracket in the coming year, your tax planning will have to be in sync with that.
2. Don't wait till the last moment
The biggest mistake taxpayers make is to wait until the last moment to plan their taxes.
When you have just a few months left, you cannot possibly make the most of all deductions, or make necessary investments to save taxes.
And when you fail to do your tax planning on time, you end up losing a big chunk of your hard-earned money, which you could have saved otherwise. So be smart, and start tax planning right at the beginning of the year.
3. Maintain books and receipts
This is one of the most crucial tax tips you must keep in mind. Without fail, maintain books of all business records, i.e., your income, expenditure, and daily transactions.
Bought equipment to support your business? Keep the receipt safe. Met with a client over lunch to discuss the new project? Store the receipt for future use. During tax season, these receipts will come in handy to show your business expenses and claim applicable deductions.
When you take bookkeeping seriously, and you preserve receipts, you won't have to worry even if there is an IRS tax audit. To avoid any mistakes in record-keeping and calculations, you either could follow these tips, or automate the bookkeeping process—hire experts to take care of the tedious task on your behalf.
4. Take all applicable deductions
In most cases, you spend a hefty amount of money on business expenses. If you want to reduce taxes legally, opt for itemized deductions instead of the standard deductions, so you can list down all of the expenses you've incurred for running and managing your firm.
If you purchase health insurance for yourself, your spouse, and dependents, you are eligible to get a deduction. You might think of it as a personal expense rather than a business expense, but it's qualified for a deduction.
And in case you work from home, you might be eligible for a home office deduction as well. A part of your house rent, utility bills, phone bills, and home insurance premiums are deductible.
5. Take professional help
Running a business is a difficult task. When you have multiple responsibilities on your shoulders to keep your business processes running smoothly, you may not have enough time to engage in hardcore tax planning.
But let's be real, if you manage to handle taxes in a smart way, your business revenue will be on the higher side, and your tax liability will not be off the chart.
So what's the solution? Take professional help. You won't have to invest time thinking of tax planning at all—the tax experts you hire will take care of every little aspect, and make sure you're not paying more taxes than actually what you should pay after the deductions.
Taxation made simple with Accountants Now
Need expert guidance and more tax tips? Accountants Now is here to help you out. Our team of tax experts takes care of your business taxes every step of the way. From tax planning, bookkeeping, and claiming eligible deductions, to filing taxes on time, we take care of everything. You focus on your business, and we make sure your taxes are taken care of. Get a free quote today.
