Tax Pitfalls to Avoid if You are Self Employed
We are living in a world that is constantly changing, and there is a rise in the international connectivity and high-quality consumer technology that has resulted in a rise in a gig economy. As a result, many people have taken their jobs in their hands and are now working for themselves.
While it is encouraging to see people assert themselves entrepreneurially in this way, many people are doing so without a clear idea of their tax obligations. If you are starting out, it is essential that you be on the lookout and avoid these common tax pitfalls.
Not Recognizing Oneself as a Freelancer
A lot of people make money through freelancing as a side gig, and tend to assume that since they are paying taxes at work, they don’t have to pay fee on their freelance payments. Such people have the same tax obligations as a full-time freelancer, and they must, therefore, pay the income tax and the self-employment tax.
Not Reaching Out for the Help You Require
Time is money mostly when you are a freelancer. Regardless of your reason for freelancing, it is advisable that you get the help of a professional to assist you with your tax matters to avoid overspending. Investing in tax controversy attorney could be the wisest decision to go especially if you find yourself reviewed. Hiring professionals to handle your bookkeeping and accounting matters saves you time and money.
Failing to Track Your Expenses
The last thing you want is to spend the first two weeks of the end of the end of your financial year on your knees, going through paperwork and tearing your hair in frustration. To avoid such a scenario; you must ensure that you log your income and expenditure on a weekly or monthly basis.
You also have to ensure that you accurately log your income-related expenses. Most freelancers, up to 73% fail to declare their tax-deductible costs meaning that the IRS takes disproportionately a significant amount out of their income.
It is therefore vital that you know exactly what counts as a tax-deductible expense. If for instance, you use your car for everyday operation of your business, you need to be aware that the vehicle mileage, tax, repairs and maintenance, all qualify to be deductibles. If on the other hand, you work from home, a portion of your rent or mortgage interests, property tax, and utilities can be deducted as can any expenses on computers and office supplies as well as the phone and internet use. Any money that is used in advertising and marketing, professional training and licensing to professional bodies are also deductible.