If you are now the proud owner of your own business, congratulations! By now, I’m sure you’ve experienced some ups and downs which usually comes with running your own show. But as you start to find your bearings and navigating your way as a new business owner, it’s important to remember certain tax implications – especially now since the tax season has started.
Here are some tips to get you off on the right tax foot and keep your business running smoothly throughout the year!
- Keep records. It seems pretty elementary, doesn’t it? But we can’t emphasize it enough! Many self-employed people put record-keeping low on their list of priorities, and at the end of the year can end up with a drawer full of receipts and no formal records to use to prepare their taxes or anything else. While the IRS doesn’t dictate what kind of records you should keep, it does require that the records be complete and accurate. QuickBooks Self-Employed will help you easily track your income, expenses, and mileage year-round. You can then export your information to your TurboTax Self-Employed tax return eliminating data entry.
- Deduct an office in your home. There are a lot of rumors about home offices triggering IRS audits. Don’t let those stories keep you from taking a home office deduction if you qualify. If you regularly and exclusively use part of your home to perform administrative or managerial activities for your business, you can claim a home office deduction for a portion of your utilities, rent or mortgage interest, depreciation, cleaning and the like, based on the percentage of space you use for your home office. You can also take advantage of the simplified home office deduction up to $1,500, which is the set dollar amount of $5 per square foot of your home used for your business up to 300 square feet.
- Report your income. If you are self-employed, you will start seeing 1099-MISC from your contract work or possibly 1099-K forms to report your income, but you may not necessarily receive the tax forms to report your income. 1099-MISC will only be issued if your client is paying you $600 or more for your freelance or contract work, and you will only receive a 1099-K form if you accept payment through a third party provider, have more than 200 transactions, and make more $20,000, so keep track of other income you made that may be under these limits since you are still required to report all income.
- Set money aside for retirement. When you start a business, it can be a financial struggle at first and you have to tighten your belt. Once your business becomes profitable, don’t let your belt out just yet – use your increased cash flow to set aside funds for your future retirement. Depending on the retirement plan, those retirement funds may garner you a current tax deduction.
- Set money aside for income taxes. You mean I owe taxes on money I’ve already spent? Yes, this is an area where self-employed sometimes don’t plan. You don’t have to file your taxes until the tax deadline which this year is April 15, but you still may be required to pay estimated payments. Those payments will be applied against the total tax you show on your tax return for the year.
Don’t worry about knowing these tax rules. TurboTax Self-Employed will ask simple questions about you and your business and give you the tax deductions and credits you’re eligible for based on your answers. TurboTax Self-Employed can also search for industry-specific deductions you didn’t even know you were eligible for.
If you have any questions, you can connect live via one-way video to a TurboTax Live Self-Employed CPA or Enrolled Agent with an average of 15 years of experience to get your tax questions answered from the comfort of your home. A TurboTax Live Self-Employed CPA or Enrolled Agent can also review, sign and file your taxes.