Tax Strategies & Credits

10 Tax Tips for Self-Employed Filers  

10 Tax Tips for Self-Employed Filers  

Thanks to the rise of Uber and other freelancing opportunities, more Americans are self-employed than ever before. Unfortunately, being self-employed automatically increases the complexity of your tax situation. In order to ensure that you minimize your tax liability while still complying with all of the Internal Revenue Service's regulations, follow the ten tax tips below.

  1. Document everything.

As a self-employed filer, one of the best ways to reduce your taxable income is through business deductions. However, the IRS requires you to document all of these deductions carefully. Keep detailed records of all of your income and expenses throughout the year so that you can minimize your taxable income.

  1. Organize your paperwork.

Poor organization can dramatically increase the amount of time it takes to complete your tax return. In some cases, poor organization may even cause you to miss deductions that could have saved you money on your taxes. To simplify the tax preparation process and prevent problems in the event of an audit, organize all of the paperwork you need to prepare your tax return and keep it in a safe place. Try to stay organized throughout the year so that you won't have to worry about looking for things at the last minute.

  1. Resist the temptation to overstate expenses.

In order to reduce the amount of taxes you pay, you may be tempted to overstate your business expenses. However, overstating expenses can lead to an audit, especially if your expenses don't seem logical. In addition, if you are subjected to an audit and you don't have the documentation to back up the expenses you claim, you may owe additional taxes, fines and penalties.

  1. Be careful with losses.

In some cases, your business activity may lead to a net loss. However, if you report a loss during three of five consecutive years, the IRS may consider your business a "hobby," and you may not  be able to claim losses.

  1. Take a deduction for your home office.

If you have an office in your home and you use that portion of your home exclusively for your business, you may qualify for the home office deduction. This deduction allows you to claim a portion of expenses you couldn't deduct otherwise, such as your home's utilities and insurance.

  1. Understand health insurance requirements.

Because of the Affordable Care Act, most individuals and families must invest in insurance coverage during the year or pay a fine at the end of the year. The penalties for not having health insurance will be higher this year than they were during the previous year. If you had insurance coverage during the year, be sure that you have documentation to prove it. If you did not have insurance coverage, you may be able to avoid the penalty if you qualify for one or more exemptions.

  1. Take the self-employed health insurance deduction.

If you pay for your own health insurance, you may be able to deduct 100 percent of the premiums you pay from your taxable income. If you qualify, make sure that you claim this deduction to reduce your liability.

  1. Budget for your tax liabilities.

People who are employed typically have income tax withheld from their checks. However, as a self-employed person, your taxes will not be withheld from your income. You will also be responsible for paying your own self-employment tax. Be sure to budget for these liabilities.

  1. Make advance payments.

The IRS requires self-employed taxpayers to pay estimated income and self-employment taxes on a quarterly basis. If you don't make these payments and you have a liability at the end of the year, you may pay additional penalties.

  1. Know your deadlines.

Always file and pay your taxes before the deadline. If you don't file and pay in time, you may owe failure-to-file penalties, as well as interest on your tax liability. If you can't file by the deadline, you can request an extension. However, you must still pay your owed taxes in order to avoid additional fees.

If you are self-employed, contact a tax professional who can help you with all of your tax needs.

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Steward Financial

Steward Financial

Jon Osborn is a tax preparer based in San Dimas, California. His company, Steward Financial Services, offers a broad range of tax preparation, accounting and business consulting for small businesses. He loves to work with clients who are looking for answers to complex tax and business planning issues. He has owned several small businesses and worked with over one hundred small business owners. He helps his individual and business tax clients find the best ways to spend their money in order to minimize IRS tax. Small businesses looking to grow, sell or just increase cash flow are one of Jon's specialties.

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