Tax Pitfalls that Every Self Employed Individual Should Avoid
We are living in a world that is constantly changing, and there is a rise in the international connectivity and high-quality consumer technology that has resulted in a rise in a gig economy. As a result, many people have taken their jobs in their hands and are now working for themselves.
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 just starting up, here are some common tax pitfalls that you must try to prevent.
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. 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 Getting the Needed Assistance
As a freelancer, you must recognize the fact that time is money. 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. Hiring professionals to handle your bookkeeping and accounting matters saves you time and money.
Not Tracking Your Expenses
The last thing you want is to spend the first two weeks of the end of the end of your financial year on your knees, going through paperwork and tearing your hair in frustration. It is therefore essential to record your income and expenditure on a weekly or monthly basis.
You also have to ensure that you accurately log your income-related expenses. It is disturbing that up to 73% of freelancers fail to file their income-deductible expenses meaning that the IRS takes up a large slice of their income without the right proportion.
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 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. Any money that is used in advertising and marketing, professional training and licensing to professional bodies are also deductible.