Tax time is a very confusing time of year but if you are self-employed, a difficult situation becomes even more challenging. There’s no way around it that if you are self-employed, you must declare your income and you must complete a tax form. The self-employed have very unique needs when it’s time to do their taxes and although the task may seem overwhelming at first, there are many ways to ensure that you are claiming your taxes properly and maybe even receive a hefty tax refund in return!
In regards to their taxes, the most important thing that self-employed individuals should remember is to take documentation of all expenses and income and to save that documentation somewhere very safe. Even a grocery bill that is from a business meeting should be saved as this expense can be added into tax deductions. You can also run into a lot of trouble if you miss income on your tax return and it therefore goes undeclared. It’s important to know what you can and cannot deduct on your tax form according to tax law but there are some very common items that can definitely be declared as tax deductions.
If you are using any part of your residence for business purposes, you can claim this on your tax form and receive a deduction for it. The amount to be deducted is determined by a tax calculator but is generally the percentage of the total size, in square feet, of the home that is being used strictly for business purposes. Which percentage is determined by the tax calculator can be used for all bills that pertain to that area. A percentage of electricity can be deducted as well as gas for heating purposes. Other business expenses are not so complicated to determine and the entire amount can be deducted. For example, if the business has a separate phone line within the home, all expenses pertaining to that telephone number could be deducted.
Office expenses such as paper, computer supplies, stamps, and other miscellaneous items can also be declared if you have kept the receipts for them. In order for these items to be deductible, you need proof that item was purchased with your receipt and it also needs to be a reasonable expense for the business. If you use a vehicle at all for your business, it’s very important to claim your travel expenses. These include mileage, repairs, and a percentage of the insurance and car payments, if applicable. If you are self-employed and also seek childcare for your children while you are working, those expenses are also deductible.
If you are in a higher tax bracket than you are comfortable with for tax purposes, you can defer income when you are self-employed and this could greatly reduce the amount that you owe or greatly increase your tax refund. Another good option for those in a high tax bracket is to start increasing expenses. Make sure to buy things that the company will be able to use in the future such as computer paper or printer ink cartridges.
It’s also important to remember that although you definitely need to familiarize yourself with the tax laws and know the basics, it really is best to seek out a tax professional that is familiar in the area of self employment. This will ensure that you are not only complying with all laws but it will also ensure that you pay the minimum amount needed or that you receive a tax refund!