Tax time is right around the corner. I’m sure I don’t have to tell any of you that though.
If you are like me, it’s probably a time that you dread. I’ve always dreaded tax time though, not just since I’ve switched to being fully self employed.
I am just an unorganized person. No matter how organized I actually am, compiling everything still overwhelms for me. And now that I am self employed, there are many more things to compile, such as business expenses that I’ve incurred over the past year.
Luckily, the hard part should already be done. As a self-employed person, you should already be paying quarterly estimated taxes, which will include your estimated self employment taxes. Let’s just hope that you don’t owe any more than that though!
Here are my tax tips for self employed workers, freelancers, side hustlers, and more. As always, I am not a tax professional so please contact one if you have any questions.
Gather all of your documents.
My first of my tax tips for self employed workers is to gather all important business-related documents that you need.
If you haven’t already, you need to make sure you actually have all of the documents you need in order to file your taxes. These should all be easily accessible. Some like to keep paper copies, whereas others might scan all checks and receipts onto their computer. Either choice is fine, just make sure everything is kept safe and secure so that it is readily available once tax time comes rolling around.
Some of the documents and receipts that you might need to gather, depending on your business and your situation, include:
- Health insurance and medical expenses.
- Retirement contributions.
- Expenses from supplies, equipment, and so on.
- Information related to home office expenses if you plan on deducting that. That could include internet fees, “rent,” and more.
- Receipts from business-related meals.
- Receipts and expenses from business-related travel, such as traveling to a business conference.
Organize your documents.
After you gather all of your tax documents, you need to organize them.
Throwing them all in a pile is usually not enough unless you want to drive your accountant crazy. It just makes everything easier on everyone to have them organized.
For me, I like to write right on the receipt or document what the expense was for if it is not obvious. I also like to write why the expense was needed for the business so that I do not forget. This is also helpful in case you get audited so that you can easily explain everything and not feel lost because you cannot remember something from years ago.
Do you need a loan in the near future?
For us, one of the things we have been thinking about a lot is how much we should deduct from our taxes. Since we want to buy a house within the next year or two, writing everything off that is an actual business expense is not always a good idea since it can lower your net income that the bank will use in order to qualify you for a mortgage.
In fact, I even contacted a mortgage professional, and even the amount that I put into my SEP retirement account lowers my net income and can hurt me when it comes to getting approved for a home loan because it shows that my net income is lower than it is.
Due to this, you should talk to your accountant about what your options may be. You may have to pay higher income and self employment taxes over the next 1-2 years in order to get approved for a home loan if that is your goal.
Pay your final quarterly payment.
If you haven’t yet, the final quarterly payment for your taxes is due on January 15, 2015. However, you do not have to make the payment that is due on this date if you file your 2014 tax return by February 2, 2015. You must pay the whole balance due with your return on this date as well if you choose this option.
If you are new to the self-employment world, then I really hope you have been saving for and paying your quarterly taxes because income and self employment taxes can be a doozy.
What tax tips for self employed workers do you have to share?