Tax Pitfalls that Every Self Employed Individual Should Avoid
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 starting out, it is essential that you be on the lookout and avoid these common tax pitfalls.
Failing to Recognize Yourself as a Freelancer
A lot of people make money through freelancing as a side gig, and tend to assume that since they are paying taxes at work, they don’t have to pay fee on their freelance payments. Such people have the same tax obligations as a full-time freelancer, and they must, therefore, pay the income tax and the self-employment tax.
Not Getting the Needed Assistance
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. Hiring a tax controversy attorney could be the most prudent investment you could make especially if you find yourself audited. Also, entrusting you booking and accounting to professionals saves you cash and time.
Filure 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. To avoid such a scenario; you must ensure that you log your income and expenditure on a weekly or monthly basis.
It also means that you have to record your income-related expenses carefully. 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.
It is therefore vital that you know exactly 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 you work from your home, a portion of your mortgage interests and rent, property taxes and utilities can be deducted as well as any expenditure on the office supplies, computers and on the internet and phone use. Any money that is used in advertising and marketing, professional training and licensing to professional bodies are also deductible.