Posted on Friday 02 March 2018
Virtually everyone dreads tax season and the inherent complexities which often accompany it. The process of doing one's taxes have become so difficult that many people hire professional accountants or tax specialists to take care of the procedure. However, taxes are somewhat different for self-employed individuals and whether they choose to do their taxes on their own or employ the services of a professional, it is still critical for people in business for themselves to have certain tax-related knowledge.
The amount of taxes that self-employed individuals will have to pay depends upon many factors. Taxes for sole proprietors will vary from taxes owed by LLCs, S-corporations, etc. Another important factor is income. Generally, people who earn more money owe more money to the government, although deductible expenses and applicable tax write-offs can decrease taxes for self-employed persons. The Balance moreover cites increasing one's business-related expenses as the most efficient ways for self-employed individuals to reduce the amount of taxes that they owe to the federal government. There are many applicable deductible business expenses including, but not limited to, insurance, advertising, rent, security, travel, etc. A full list can be viewed by clicking here .
According to TurboTax, one of the best ways for self-employed individuals to prepare for taxes is by using a Schedule C . Not only does this somewhat simplify the process of doing taxes, but it also allows the individual to see how much money they earned or lost. As a matter of fact, the use of a Schedule C is mandatory for sole proprietors. Self-employed individuals are also advised to prepare for tax season by securing a personal tax ID number and a business tax ID number. This truly comes in handy if business owners are mandated to provide their employees with W-9 forms. Finally, the use of online financial tools like Quickbooks and Mint are excellent for helping self-employed individuals track their income, business expenses, and growth. Each of the aforesaid elements will play an integral role during tax season.
Believe it or not, sometimes people mistakenly classify themselves as self-employed when they are actually employees. This mistake can severely complicate the process of doing taxes during tax season. According to additional reports from The Balance, the official definition of self-employed individuals reads as follows: "If you are in business for yourself, or carry on a trade or business as a sole proprietor or an independent contractor, you generally would consider yourself self-employed."
Tax season can be inherently challenging for even the savviest business people. This is why many people choose to hire accountants or tax specialists. Although this option is available and often advisable, self-employed individuals who have, at least, somewhat of an understanding of taxes will be infinitely better off than their completely unaware counterparts. There are many benefits of being self-employed . As the world of work changes and evolves, going into business for oneself is an avenue that more and more individuals are venturing towards.
For more information, check out 10 Tax Tips for Young Professionals.