There’s a long list of perks that go along with being self-employed, but you may not realize that filing self-employed taxes should be on that list as well. Being the CEO, director, manager, and staff of your self-created workplace might seem challenging enough to where handling all the taxes might seem too overwhelming to bear. But don’t shy away from this challenge because if you stay on top of a few things, you might find that tax season isn’t as dreadful as you think.
Where do I even begin?
Getting started is the hardest part. When you’re starting a new job, taxes aren’t usually the first thoughts that you consider. However, when you’re self-employed, predicting how much you’ll owe in self-employed, federal, and state taxes is important to take into consideration early on. You don’t need some intricate formula to calculate self employment tax though — there are handy calculators that can do that for you. To get an estimate of how much you’ll owe in your state, input in your filing status and expected annual income, and let the calculator work its magic. Taxes aren’t deducted automatically when you’re self-employed. So to keep the IRS off your back, calculate what you’ll probably owe and set aside a portion of your earnings for taxes.
When someone asks you what your profession is, the response needed is far less complicated than what it is on your taxes. Before you can get into the nitty-gritty of tax breaks and sales tax, you need to have an idea of what your entity is. Is your company an LLC, partnership, C-corporation, S-corporation, or sole proprietor? This will determine if you will pay taxes on Medicare and Social-Security and other various ways that your taxable income will intermingle with your personal tax return. By understanding what kind of corporation you have, you will be able to know what taxes to pay (and not pay), and what kind of deductions and benefits you’re eligible for.
What’s the first step in documentation?
One of the best parts about being self-employed are the tax deductions and benefits that you probably won’t even know exist until you start filing taxes. However, before you can lock down any deductions, you’ll need to apply for a tax identification number (TIN). Feel your temperature rise yet? Don’t worry, the IRS describes in detail the documentation process on their website, and you can also call or pay their offices a visit. They will happily assist you in the rather simple process required to get a TIN.
What about tax deductions?
The tax breaks are certainly the point we all love getting to in any conversation about taxes. There are tons of them, so make sure you stay well-informed of any expense incurred through your self-employment. From something as simple as a meal, to your phone bill, to automobile expenses, the cost of being self-employed adds up. Don’t neglect any small cost. Keep a running list of every dime you spend relating to your job and you’ll thank yourself when tax season rolls around. It’s best if the list is kept in an Excel sheet or some other digital format where you can easily search for past expenses and calculate totals. Don’t neglect this aspect of self-employment as it will save you a lot of money in the future.
Should I tax my goods or services?
This is different for every state, and it’s something you need to check into early, before you start selling your goods or services, to avoid having to pay out money you didn’t earn through sales tax. Check with your state government to see if they require business owners to charge customers sales tax, and if they do, then add it to the total cost of your products or services. If it’s a requirement, then you will have to pay out the money you earn from sales taxes regardless of whether you charge a surcharge when rendering services or not, so this is really important if you don’t want to come up short after paying taxes.
Being in charge of the taxes of your own business can be challenging, but it’s not some insurmountable odd that should discourage you or be the cause of you hiring someone else to do it. If you keep track of expenses, produce the necessary paperwork, charge correctly, and set aside money for the amount you will owe your state and federal government, then you shouldn’t have any problems. There’s also millions of people out there who have had the same questions as you, therefore there’s tons of literature, both online and in your local library, where you can find all the answers. If something is so complicated or too specific, the IRS can answer all of your questions completely free of charge.