Tax Pitfalls that You should Avoid if Your Work for Yourself
With the world being in constant change, there is a rise in the international connectivity and high-quality tech which has led to a rise in a gig economy. This has seen many people brought their careers into their hands and started working for themselves in a variety of fields.
It is encouraging to see people take their entrepreneurial skills to an advanced level but it is frustrating that many of them 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
As a freelancer, you must recognize the fact that time is money. 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. If you find yourself reviewed, the most prudent investment that you could ever make is hiring a tax controversy attorney. Hiring professionals to handle your bookkeeping and accounting matters saves you time and money.
Failing to Track Your Expenses
Obviously nobody wants to start another financial year with disappointment by tracking to track their financial records without any success. It is important thus that you log your revenue and spending weekly or monthly.
You also have to ensure that you accurately log your income-related expenses. Most freelancers, up to 73% fail to declare their tax-deductible costs meaning that the IRS takes disproportionately a significant amount out of their income.
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. 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.