5 Tax Tips for the Self-Employed

5 Tax Tips for the Self-Employed, man, sitting, typing

Freelancers and independent contractors face unique challenges during tax season. Here are some quick tips to better manage the process and maximize your deductions.

Ever feel a little lost during tax season as a self-employed taxpayer? Whether you did a few extra freelance gigs on the side or manage your own business, income tax filing can be overwhelming, especially if you haven’t done it before.

Here are some quick tips to help you understand and better manage the process. The more you know, the more you can maximize your deductions.

Required Documents 5 Tax Tips for the Self-Employed, arts, build, close up, pens

Any client who paid you more than $600 in the last calendar year should send you a 1099 by 1/31 (you generally complete a W-9 form when you are hired to provide them the information they need to later generate the 1099). Even if they fail to send one, you are responsible for reporting your full income — even freelance gigs.

Self-employed filers also must fill out Schedule C and Schedule SE forms to document their income, expenses, and deductions.

Special Taxes, Special Solutions 

If you’re swimming in 1099s and itemized deductions, it may be worth hiring a tax professional to help you sort through the freelance tax muck and maximize every potential credit and deduction.

Estimated Taxes 

In a perfect world, you do not owe taxes. However, nothing is perfect. If you are self-employed, do not receive a W-2 or have income tax withheld from other income sources (i.e. pensions, retirement distributions, etc.) the IRS wants you to make estimated tax payments.

A common mistake is that these are made quarterly, but they are not. Yes, there are four of them, but the due dates are April 15th, June 15th, September 15th, and January 15th. If you do not make any, or not enough, the IRS will assess their “underestimation penalty”. There are minimums and exclusions, so you should seek out professional advice.

If you have not yet calculated what should be paid, it’s not too late. However, time is running out.

Maximize Those Deductions!  5 Tax Tips for the Self Employed, class, classroom, conference

Independent contractors and freelancers can claim valuable tax deductions if they qualify. Mileage from a car used for business, home office expenses, and even a portion of the rent or mortgage interest, property taxes, health insurance premiums and utilities, computer, internet, phone, and business-related meals can be deducted. Money spent on advertising, subscriptions, licenses and professional development is also largely deductible.

What to Do If You Owe

Many freelancers and independent contractors, unfortunately, may find themselves stuck with a surprisingly high tax bill. (Attend any networking event for self-employed pros in the spring and listen to the horror stories fly!)

If this happens, don’t panic. Filing an extension doesn’t delay the payment due date, it only gives you extra time to file. But the IRS is surprisingly willing to negotiate monthly tax payment plans to fit your budget. If this happens, it may be worth taking your returns to a tax professional for a second look to make sure they can’t improve your situation — and to plan better for next year.

May your tax bill be mini and your deductions mighty!

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Jeffrey Schneider, EA, CTRS, NTPI Fellow has the knowledge and expertise to help you reach a favorable outcome with the IRS. He is the head honcho at SFS Tax & Accounting as well as an Enrolled Agent, a Certified Tax Resolution Specialist and Advanced Crypto Tax Expert.
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Author of the Now What? Help! series, Jeff defines and deconstructs IRS notices and clarifies the letters and actions the IRS will take to get what they want. He interprets the world of the IRS in a fashion that mixes attention to detail with humor to help you better understand and resolve your tax problems.

The books are available in paperback and eBook on Amazon.

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