There are many benefits to being self-employed. Often, you’ll get to set your own hours, work from whatever location you please, and take on projects that interest you. There are also tax benefits to being self-employed. But one potential drawback is the process of filing taxes can be trickier and more cumbersome than if you’re a salaried employee. With that in mind, here are four tips to navigate the current tax season.
1. Start the process early
Your 2021 tax return, which is the return you’re filing this year, isn’t due until April 18. But if you’re self-employed, it pays to start working on it well ahead of that deadline. You may run into different hiccups as you get your documentation in order, such as realizing you’re missing certain information you need to complete your return. The sooner you get started, the less stress you’ll have.
2. Make sure you have a clear handle on your earnings
It’s important to keep detailed records of your earnings when you’re self-employed, because depending on your situation, you may not have such an easy time reporting your income on your tax return. If you’re self-employed and were paid through a third-party platform like Upwork last year, you won’t get a tax form summarizing your income unless you earned over $20,000 and were paid in over 200 separate transactions.
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As you sit down to file your taxes, go through your bank account statements carefully to make sure you’re reporting every dollar to the IRS. Failing to report income could land you in trouble if the IRS audits your return.
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3. Know what expenses you can write off
One perk of being self-employed is you’re eligible to deduct business expenses you incurred in the course of doing your job. If you used your car to visit clients, you’re eligible to deduct mileage. If you worked out of your house, you may be in line for a home office deduction. If you’re a writer who bought a new laptop or printer, those expenses are generally deductible, too.
Go through your bank and credit card statements to see what you spent money on last year. Then, make a list of your deductions so you know what to claim.
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4. Get help
Since taxes get more complicated when you’re self-employed, it may be worth it to hire a tax professional rather than tackle your return yourself. A tax preparer may be able to help you identify expenses you didn’t know you could write off, to the point where the money that person saves you pays for their fee.
But if you’re going to hire someone for tax help, don’t wait. Tax preparers tend to book up as the season moves along, so you’re better off making calls now, before you lose that option or get stuck paying for someone whose fees are higher.
Filing taxes when you’re self-employed isn’t always super difficult, but it can be a time-consuming and somewhat daunting process. Use these four tips to get organized and avoid needless stress as you tackle your 2021 return.
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