When it comes to managing personal finances, it can be tricky to know how to proceed. While many people start focusing all of their energy on taking care of the things they need at the moment, the truth of the matter is that there are a lot of things you can do to disrupt your finances that may be easy to ignore at first. For starters, it is crucial to move forward and identify tax issues, even if you haven't focused on them quite yet. Check out these short posts to learn more about how you could be faced with tax problems, and how to resolve the situation for the long run.
With nearly one-third of the American workforce currently classified as "self-employed," many newly independent contractors find themselves feeling stressed about the upcoming tax season. If this is your first time filing taxes as a self-employed individual, you might be wondering where to begin. Fortunately, there are some steps you can start taking now to make tax preparation a lot easier down the road.
Keep a Running Spreadsheet
When you're self-employed, you're also responsible for calculating your own tax responsibilities because you don't technically have an employer to automatically deduct your taxes from your paycheck. This is where things can get complicated, especially if you're getting paid from several different clients.
The easiest way to keep track of your income and tax responsibilities is to use a basic spreadsheet to log how much you've earned on a monthly basis from each of your clients or income sources. This information will especially come in handy if you don't receive any 1099s, as detailed tracking is the only way you'll be able to figure out your taxable income reliably.
Apply for Quarterly Tax Payments
In many cases, self-employed individuals are required to pay taxes four times a year (once each quarter). This may sound like a lot, but it can actually save you from the hassle and financial burden of paying your taxes in one large lump sum at the end of the year. If you need to make quarterly tax payments, you'll need to apply for an account through the Electronic Federal Tax Payment System, so don't delay in getting started.
Don't Overlook Deductions and Credits
As much of a pain as paying self-employment taxes can be, there are plenty of write-offs and deductions available for self-employed workers. For example, if you're working as a ride-share driver, you'll want to make sure you're writing off applicable fuel costs, vehicle maintenance expenses, and other related costs to reduce your tax burden. If you work out of a dedicated home office, you'll also want to make sure you're taking advantage of the home office deduction.
Seek Help From a Tax Preparation Specialist
Filing taxes for the first time as a self-employed worker can be overwhelming, and you may find yourself wondering whether you're making any costly mistakes along the way. This is where it can be very helpful to work with a tax preparation professional at least for the first year that you file. They will be able to answer any questions you may have and make sure you understand all the intricacies of paying taxes when you're an independent contractor.Share
10 December 2020