Tax season as an independent contractor comes and goes throughout the year as you file quarterly, but April 15 tends to be the biggest date of the year as it is the deadline for personal income tax. There are many steps you can take in preparation for this deadline to help make sure filing goes smoothly. Here are five tips to prepare your independent business for tax season.
1. Review Your Tax Responsibilities
In addition to paying income tax, you’re likely subject to self-employment tax as well. Take the time to review your tax responsibilities now to make sure everything is in order for the coming year. As a quick review:
- Schedule C: use this form to report your income or loss from your business
- Schedule SE (Form 1040 or 1040-SR), Self-Employment Tax: use this form to report your Social Security and Medicare taxes
- 1040-ES: use this for to pay your estimated tax quarterly. Quarterly taxes are generally due on April 15, June 15, September 15, and January 15 of each year. This is an estimate of tax owed based on your income for the quarter. You can also pay quarterly taxes online using the Electronic Federal Tax Payment System (EFTPS).
- State taxes: you may also be subject to state and local taxes depending on where you are based. Check the U.S. Small Business administration for guidance in your particular state.
Remember, how your business is incorporated, how much money you make from self-employment, and your profit over the past year are all factors in which taxes apply to you. Reviewing these tax responsibilities is an important step to make sure you are keeping your business compliant.
Learn more: How to Estimate Your Tax Returns as an Independent Contractor
2. Gather Paperwork, Forms, and Documents
As you file taxes throughout the year, keep track of how much you’ve paid and when. If you plan on taking any deductions, now is the time to gather receipts for those claims. If you’ve made any marketing investments such as advertising, creating a website, or even purchasing business cards, make sure you’ve tracked and recorded these expenses.
Other items to keep in mind could include a new computer or laptop, and office supplies such as pens, printer in, paper, and software. If you’ve made contributions to self-employed retirement options such as aa Solo 401(k), SIMPLE IRA, or SEP IRA, have this information at the ready. If you travel frequently for work and have legitimate business expenses, gather these receipts as well. Having everything on hand will make it easier to file and you’ll be less likely to forget or overlook a deduction.
3. Consider Available Deductions
With this information in hand, take some time to consider what deductions might be available to you. One of the most common deductions for independents is the home office deduction. If you exclusively and regularly use part of your home as your primary place of business, you may be eligible to deduct a certain amount of mortgage interest, insurance, utilities, repairs, maintenance, depreciation, or rent.
Another deduction to keep in mind are tax-deductible retirement plans as well as insurance premiums. Educational expenses are also tax deductible if they are related to maintaining or improving your skills for your business or if they are required by law to maintain a license or specific status. Marketing and advertising spend, business travel, and meals are other deductions to investigate.
When it comes to self-employed tax deductions, there are many to consider. To make sure you are eligible, check out the Self-Employed Individuals Tax Center or ask a tax expert for advice. Be honest about your expenses, and make sure you have the proof and receipts to back them up.
Here’s more: 9 Self-Employed Tax Deductions You May Overlooking
4. Review State Tax Payments
It’s easy to get focused on paying estimated federal taxes and let your state taxes fall by the wayside. But don’t forget about them! Although state taxes tend to be much lower, it is easier to pay them quarterly as well to avoid a heftier bill at the end of the year. Most states will allow you to do this.
To find information about your state taxes, check out the U.S. Small Business administration website or google “self-employed taxes your state.” This should lead you to a government website for your state with information specifically for self-employed individuals.
5. Double Check Your Submission
Once everything is filled out and complete, be sure to double check your work. simple math errors are one of the most common tax audit red flags. Reviewing your return a few times or asking someone to review it for you is a good practice. Make specific note of details like your Social Security number, spelling of your name, or a misplaced decimal point.
If you are new to filing taxes as a self-employed professional it might be helpful to find a professional tax preparer to consult. As you become more familiar with the ins and outs of self-employed taxes, it will be easier to develop an organized system that you can check in with and update every few months. Staying organized, paying your quarterly taxes, and saving those receipts will help make your life that much easier come April.
Check out: How to Avoid a Tax Audit: Tips for Small Business Owners
The information provided in the MBO Blog does not constitute legal, tax or financial advice. It does not take into account your particular circumstances, objectives, legal and financial situation or needs. Before acting on any information in the MBO Blog you should consider the appropriateness of the information for your situation in consultation with a professional advisor of your choosing.