There are several benefits of being your own boss, either as a business owner or a freelance worker. One of these is the flexibility when it comes to your work hours, as well as the schedule for your vacation. However, along with the perks, are some challenges, which include the need to file your taxes promptly. This means that you should file your self-employed income taxes quarterly as much as possible.
One of the primary things that you need to remember if you are self-employed is to settle your tax dues quarterly. In this case, you have to take note of when quarterly taxes are due, which are consistent during the 15th of April, June, September, and January. However, these dates may be subjected to change, particularly during unforeseen situations such as a global pandemic.
Rest assured that you will be able to leverage a form from the IRS to find your adjusted gross income and, from there, calculate the tax dues that you owe. Since your income will most likely be inconsistent and vary from time to time, you are protected from penalties by the safe harbor method. To make sure that you can keep track of your taxes when you are self-employed, you can refer to the two commons but often overlooked tips below.
1. Organize Receipts
One of the primary things that you can do to make sure that you are on top of your tax dues is to organize your receipts. A good practice is to take photos of your receipts so that you will be able to store them digitally. Apart from physical receipts, this includes the receipts that you receive through email.
Make sure that you have a copy of your receipts in a backup storage device such as a cloud server to ensure that you don’t lose any of your copies. As much as possible, organize your receipts by date, too, as well as by type or what you purchased with those receipts. Make sure that you keep your receipts for at least three years because this will serve as your proof and reference in case you are audited.
2. Leverage a Spreadsheet
Another thing that you can do to keep track of your taxes is to leverage a spreadsheet that will allow you to record your income as well as your expenses properly. At a single glance, you will be able to know whether your income exceeds your costs or the other way around, as well as the amount of taxes you need to settle based on your generated income. In terms of the latter, you can begin by generating four columns, namely item, cost, date, and receipt. You can even add some notes in another column indicating where your receipts are stored.
When you keep a record of your transactions and receipts, you will find it easier to file for your quarterly taxes. But aside from spreadsheets, you can also explore other contemporary tools that provide more features. Just remember that as your business grows to scale, or as you employ more people to work with you for your business or freelance works, you may need more assistance when it comes to your taxes.
Tax Deductions and Benefits
It can prove to be quite difficult to file your income tax as a self-employed individual if you don’t have a good idea of the tax deductions and benefits that you are eligible for. In this case, below are some of the receipts that you should keep because these are the expenses that are commonly exempted.
Internet and Phone Bills
Make sure that you keep your internet and phone bill receipts because these are the expenses that are eligible for a tax deduction. However, you need to ensure that you are only deducting business-related expenses. Thus, it is a good idea if you get a separate internet connection for your business, as well as a business phone to ensure that personal internet and phone bills are not included in the expenses that you deduct.
Health Insurance Premiums
Another type of expense that you can deduct from your tax dues is the amount of money that you have paid for your health insurance premiums. However, this is only applicable if you are not covered by the health insurance premium of your spouse. Nevertheless, you can also deduct the amount of money that you have spent to pay for the premiums of your dependents.
Meal expenses are also deductible from your tax dues, provided these are business-related, such as when you travel for a business meeting or when you are entertaining a client. But remember that the meal should not be lavish and that you can only deduct 50% of its overall cost. The normal lunches that you take on a regular day are not included in the expenses that you can deduct under this category.
You can also deduct your travel expenses from your tax dues, but like with meals, you can only do so if your travels are business-related. One criterion that you need to fulfill in this case is that your business travel should at least last longer than an ordinary workday, requiring you to rest in a place away from the general area of your home. You must also have a specific business purpose for the trip and present proof that you indeed engaged in business-related activities.
Some of the deductible expenses when it comes to this category includes your transportation costs, lodging, and meals. This is the reason why you need to be keen on keeping all of your receipts that are in line with these expenses.
The process of income tax filing of self-employed individuals proves to be different from the process that regularly employed individuals have to take. While the former may be more challenging, just adhere to the fact that there are several benefits to being your own boss. All you need is to be committed and diligent in filing your taxes promptly and accurately to avoid any penalties.