Tax Time for the Self-Employed: Tax Tips to Get You on Track

Posted on April 12, 2016

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Use These Tax Tips to Get Organized, Lower Your Tax Bill and Stop Worrying at Tax Time

tax tipsIt’s common for self-employed business owners to put aside all financial record-keeping until the end of the month, or even the end of the year. However, if you can set aside just a few minutes each week and follow a few easy tax tips, you might find that preparing your tax return is no longer a dreaded event.

Here are tax tips that will help you maximize your deductions, improve your organization and rest assured that your tax return is in order when it’s time to file:

Take a deduction for the business use of your home. Many self-employed business owners spend much of their time working out of their home, yet never capture the deduction on their tax return. You can deduct a percentage of qualifying expenses from your taxable income, including a portion of your mortgage and utilities.

Save for retirement. Not only will you appreciate the wealth accumulation when it’s time to retire, but you can deduct the amount you save from your taxable income. If you have a small business retirement plan, you can save up to 25 percent of net earnings and deduct that amount on your tax return.

Deduct business-related expenses. You remember to deduct items like gas or a new laptop, but you may be missing other expenses related to running your business. If you spend money on trade magazines or sending flowers to a big client, for instance, deduct those expenses on your tax return. The standard used to determine whether you can deduct it is the “ordinary and necessary” rule, which says that the purchase generally fits the nature of the type of business you operate.

Keep track of your cash. Many people that are self-employed have bad habits, like forgetting to record cash purchases. This can have a significant impact on your bottom line because it increases your taxable income as well as your tax bill. Keep a mini folder with pockets in your car, where you can stash receipt with a note about what the purchase was, so that you can easily stay organized with cash purchases. Better yet, open a business credit card and use it exclusively.

Put your kids on the payroll. If you’re paying your teenage kids to help with the business, be sure to put them on the payroll. The payroll expense reduces your taxable income, and even if your child makes enough money to pay taxes, it likely will be less than the payroll expense you were able to deduct.

Record income. This seems like obvious advice among more nuanced tax tips, but it’s easy to incorrectly record income. When your income doesn’t match the amount listed on a 1099 from a contractor, expect a letter from the IRS. It’s a red flag for an audit.

Hire an accountant. If completing a tax return is outside your comfort zone, don’t hesitate to hire an accountant. You’ll not only benefit from the assurance that your return is correct, but you’ll also gain wisdom about how to run your business.

Bert Doerhoff, CPA, and his team at AccuBiz regularly advise self-employed individuals that want to gain tax tips and guidance for running a financially sound business. AccuBiz provides a wide range of accounting and bookkeeping assistance, from completing tax returns and handling payroll to providing full accounting services. Call AccuBiz to set up an initial appointment.

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Posted in: Bookkeeping