Tax Pitfalls that You should Avoid if Your Work for Yourself
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. 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 starting out, it is essential that you be on the lookout and avoid these common tax pitfalls.
Not Recognizing Oneself 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
Time is money, especially when you freelance. Regardless of your reason for freelancing, it is advisable that you get the help of a professional to assist you with your tax matters 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.
Not Tracking 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. It is therefore essential to record your income and expenditure on a weekly or monthly basis.
It also means that you have to record your income-related expenses carefully. Believe it or not, almost 73% of all freelancers fail to declare their income-deductible expenses leaving the IRS to take a sizeable bite out of their income disproportionately.
Having This is mind, it is vital that you know exactly what counts as a tax-deductible expense. If your daily business operations require the use of your vehicle, you need to beware that the mileage, maintenance and repairs, and taxes all 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. Additionally, any cash that is spent trying to acquire a license or registering to a professional body, advertising, and marketing or paying for vocational training or coaching is all deductible.
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