One of the worst failings in American public schools is the refusal to teach students how to grow up. Even though we teach kids useless junk like geometric proofs, they have no idea how to apply for a job or file their taxes. That’s a shame, and we’re here to help.
Whether you’re a freelancer, influencer, or someone with multiple streams of income, these tax tips are necessary for anyone who is self-employed. In school, no one gets to learn anything about finances. And we’re setting this out into the world for those having to figure it out for ourselves.
For employees working for businesses, taxes are typically easier because employers already take the necessary percentages out of their employee’s salaries. But if you’re not working for an institution and are your own boss, taxes can get a bit more complicated. Doing what you can to learn more about these topics is super essential.
I started my business last year and figuring out how to do taxes for a business is vastly different than just having a job. These tips are compiled from my own experience as a writer and artist.
If you’re interested in or starting out with self-employment, you may want to take a look at these tips as a simple starting point:
Know When You Have to Pay
Being self-employed can make it difficult to keep track of expenses. Grab a calendar or use an online one for this. You must be keeping up with payments when they are necessary. If you’re not sure how much you’re going to have to pay for taxes, the IRS site has a tool for estimating that.
One of the best tips I ever received was separating expenses. Having separate accounts for personal expenses and business expenses makes taxes so much easier.
A great way to cushion yourself when you have to pay your taxes is to have one exclusive saving account just for tax money.
You’ll want to set aside a percentage of your income every month into this account. Do whatever amount feels right to you. But a good portion to put away would be 30% if you can do so.
The best way to stay on track with payments is to automate the transfers from that account.
Keep Track of Expenses and Income
Everybody needs to keep their paperwork. It’s vital to have a file cabinet, containing all your tax information and similar paperwork. You will surely need it again somewhere down the line, so it’s far better to have the numbers now.
And when you’re self-employed, you want to keep track of all business expenses and income. Even if your earnings are in cash. Money spent to facilitate and help your business can actually be tax-deductible. So it’s something you want to be aware of and keep records of.
Keep your receipts and records of your earnings and expenditures diligently.
It’s best to keep them for at least 3 years. This will really help when it comes time to pay taxes. You do not want to slack on recording these things.
It wasn’t until I started my business that I actually had need for receipts. I keep track of everything and am constantly digitizing files and receipts. This is where organizational skills are essential. Being disorganized can quickly kill your business.
Get a spreadsheet set up and document every time you spend money on your business or earn money. If you’re not sure which things are tax-deductible, you may want to call up a financial expert to make sure that you’re doing the right things.
Also check out: How to Create a Budget If Your Salary is Unpredictable.
Pay Quarterly
Most freelancers are actually required to pay quarterly. And it probably has to do with the fact that they don’t have bosses taking tax percentages out of their salaries for them. If you’re making over $400 a year from home- even if you have a daytime job, you should figure out tax payments and make sure that you’re doing them correctly.
After tracking income, the biggest thing I’ve had to deal with is making sure I paid on time.
Taxes are very uncertain territory for many people. So make sure to get a tax provider or financial consultant that you trust. (Bonus points if there’s an accountant in your family that you can ask for help!)
Bonus: Potentially Tax Deductible Expenses
Don’t underestimate the magic power of the tax deduction. There’s a lot of them, more than you could realistically imagine. They just don’t want you to know about it. But you can always talk to a professional and see what you might be entitled to. And when done right, you can save thousands of dollars.
Not sure which things you can benefit from spending on when tax time rolls around? We’ve compiled a few possible things that you may want to think about taking record of:
Home Office
If you’re working from home, there’s a particular amount of square footage that you can account for when it comes to tax time. This includes stationary, water bills, air conditioner, and anything else crucial to running your business. Figure out which things are relevant to yours.
Work Miles
If you use your car for work, you can actually record your odometer’s work miles. If you don’t need your vehicle for work, this is not necessary.
And there’s a lot more out there that’s potentially deductible. Do you ever have to pay for a hotel or a fancy dinner in your work? That could be written off. How about advertising, office supplies, and website fees? That too could count. Virtually any expense for your business can be taken out of taxes, as long as you have the right documentation to show for it.
It can be difficult to navigate finances when your salary is unpredictable, but there is plenty of content available to help you navigate being self-employed if you just know where to look.
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