Whether you’re an employee, freelancer, or business owner, filing taxes will always be stressful. But managing the tax process doesn’t have to be as complicated and overwhelming as it may seem. With some good planning and the help of a few tips and tricks, you'll be on your way to receiving that refund—or paying your taxes owed—before you know it.
Here are some great suggestions to make paying taxes a little more manageable, brought to you by Purposeful Financial and Legacy Planning.
Tax Tips for Freelancers
Working as a freelancer can make your life easier in a lot of ways, but not when it comes to filing taxes. Freelancers have to do all of the work in calculating their taxes owed and deducting their business expenses, ensuring they save up enough to cover the bill when tax time comes around. Keep in mind that you also have to pay self-employment tax, which is the portion of Social Security and Medicare typically paid by a traditional employer. These additional taxes can surprise new freelancers who haven’t put away enough money throughout the year.
Fortunately, freelancers are eligible for some tax benefits that can reduce the amount you owe. If you work from home, for example, you may be able to deduct a portion of your mortgage or rent, utilities, insurance, and home repairs. And if you use your car for work, you may have additional transportation costs to deduct as well.
Get Tax Preparation Help
If your taxes are fairly simple, you might be able to do them yourself. But if your situation is a little more complicated — for example, you have business or rental income—your best bet is to turn to a professional tax preparer to help you out. Regardless of how complex or straightforward your taxes are, paying someone else from a reputable company to do them will save you a lot of time. The IRS suggests that it will take the average person about 11 hours to prepare their tax return this year!
If you’d rather do this yourself with a little tech at your side, there are many ways to file taxes without hiring a professional to do everything for you. For example, QuickBooks offers an efile 1099 service for business owners who have hired gig workers, freelancers, or contractors over the past year. Of course, if all of this sounds way too complicated, getting a tax professional to help guide you through the process is highly recommended.
Common Mistakes
Understanding the common mistakes people make when doing taxes will help you avoid these same pitfalls—some of which could cost you big time! Making mistakes on your taxes could mean missing out on a larger return, owing interest and late penalties, or triggering an audit. One of the biggest mistakes people make on their taxes is failing to enter wages, bank interest, and dividends as this information is reported to them, so be careful when inputting numbers into your return. It’s a good idea to check for typos and errors when you’re done to avoid these common issues.
Planning Ahead for Next Year
Now that you’re finally finished with this year’s taxes, start getting organized to make next season easier! One of the best ways to do this is to keep good records. Keep a detailed breakdown of your earnings and expenses, so you don’t have to comb through piles of receipts next year to calculate your deductibles.
If you run a business or work as a freelancer, it’s also a good idea to separate your personal and business finances for hassle-free filing. Consider charging all of your business expenses to the same credit card to keep these purchases separate from your personal spending. You may also want to open a dedicated business bank account that you can use to pay bills, deposit cash, and collect payments from your clients.
Last but not least, make sure that you’ve filed the paperwork for your LLC and acquired your EIN, which is also referred to as your tax ID number.
It’s no secret that taxes are so complicated, and it’s easy to postpone filing until the last minute. But putting off your taxes will only add to your stress—and may even mean missing out on tax credits or facing penalties for late payment. Take a deep breath, hire help, and get it over with as soon as possible!
Purposeful Financial and Legacy Planning offers financial planning to help you live an inspired life! Get in touch with us at (970) 443-1873 or email steve@purposefulfinancialplanning.com. Thanks to contributing author, Gloria Martinez, for the information in this post.