Tax Pitfalls to Avoid if You are Self Employed
The world is changing and as such, there has been a rise of international connectivity and high-quality consumer tech giving rise to a gig economy. This has seen many people brought their careers into their hands and started working for themselves in a variety of fields.
While it is encouraging to see people assert themselves entrepreneurially in this way, many people are doing so without a clear idea of their tax obligations. If you are a beginner, it is essential that you avoid these common tax pitfalls.
Failing to Recognize Yourself as a Freelancer
Many people make money freelancing as a side gig alongside their day job and assume that because they are paying tax at work, they do not have to pay tax on their freelance wages. The truth of the matter is that these people have the same tax obligations as the full-time freelancer, and are, therefore, required to pay the income tax as well as the self-employment tax.
Not Reaching Out for the Help You Require
Time is money mostly when you are a freelancer. Whether you do freelance as your living or a lucrative sideline, it is crucial that you reach out to people who can assist you with your taxes to avoid overspending. Investing in tax controversy attorney could be the wisest decision to go especially if you find yourself reviewed. Also, entrusting you booking and accounting to professionals saves you cash and time.
Failing to Track Your Expenses
You do not want to spend the first week of April on your knees, sifting through loads of paperwork and tearing your hair out frustration. It is important thus that you log your revenue and spending weekly or monthly.
You also have to ensure that you accurately log your income-related expenses. Most freelancers, up to 73% fail to declare their tax-deductible costs meaning that the IRS takes disproportionately a significant amount out of their income.
With this in mind, you must, thus, ensure that you know what counts as a tax-deductible expense. If you use your vehicle to run your day-to-day business, you should be aware of the fact that the vehicle mileage, maintenance, repairs, and tax can qualify as deductibles. If on the other hand, you work from home, a portion of your rent or mortgage interests, property tax, and utilities can be deducted as can any expenses on computers and office supplies as well as the phone and internet use. Equally, any money that is spent on marketing and advertising, vocational training or coaching, as well as registration or licensing with a professional body, are deductible.