Joined The Ranks Of The Self-Employed: How To Avoid Tax Problems
Tax season is always stressful. However, it can be a real nightmare when you're self-employed. There's a whole new list of hoops that you need to jump through when you decide to become your own boss. If you're not prepared for the process, you can end up owing much more than you anticipated. Here are four steps to take that will help you avoid problems with your taxes.
Hire an Accountant
When you were employed outside of the house, you might have done your own taxes every year. That's something you should stop doing now that you're self-employed. You'll have additional forms to fill out for your self-employed status. You'll also have additional deductions to look out for. If you're not sure what you're doing, you could make a costly mistake. Now that you're self-employed, hire an accountant to take care of your taxes for you.
Invest in a Good Filing Cabinet
If you're self-employed, you need to invest in a good filing cabinet and a healthy supply of file folders. You're going to need your filing cabinet to categorize all the paperwork you have regarding your self-employment. This is where you'll store things like your bank statements, business licenses, letters of incorporation, etc. You'll need all those documents once tax season arrives.
Save All Your Receipts
Now that you're self-employed, you need to save all your receipts. You can't write off your work expenses without the proper documentation, which is where the receipts come into the picture. The money you spend on a new ink cartridge may seem inconsequential now, but when you're looking for ways to reduce your tax bill, you'll be glad that you saved that receipt. When you mix personal and business transactions together on one receipt, be sure to mark the business items on the receipts as soon as you get home. That way, you know exactly what purchases went for your business and which ones were personal.
Protect Your Work Space
If you plan on writing off your home office space as a tax deduction, you've got to protect the space. You can only claim your office space if it's used solely for work purposes. The size of the space doesn't matter, although you will get a bigger deduction for a larger space. However, if you're mingling personal and business in the same space, you can't claim it as a work space.
If you're self-employed, now's the time to prepare for tax season. The tips provided above will help you avoid problems when you file your taxes. If you haven't hired an accountant yet, make sure you do that before tax season rolls around.
Contact an accounting firm like Bliss & Skeen CPAs for more information.