Tax season alone is enough to throw even the most responsible workers into a frenzied tailspin. Think filing taxes as an employee is tough? Try filing taxes when you work for yourself. The manner in which you will file will vary based on how you are set up as a business, so pay attention to the rules and advice coming straight from your accountant, as this will be accurate to you and your situation specifically. If you are filing as a contracted worker and receiving 1099’s as a result, these tips may prove helpful to you, so listen up!
1. Save everything! After (and even before) getting solid, trusted counsel and deciding if you are in fact a self-employed contracted worker, you will need to keep accurate and legible records of all your business expenses and income. You will be responsible for filing taxes on the income you make, but you wouldn’t want to lose out on the valuable expenses and write-offs that you are entitled to as a part of doing business. Keep your receipts, invoices, anything that proves what you spend money on and for what purpose. You will be glad you did in the case of an audit by the IRS. Plus, you will want to know if you are profitable on a personal and business level as well.
2. Invest in good expense and income tracking software, or as we like to say, for your “Books.” Consider the computer you are using (Mac vs. PC or even Chromebooks), as the software will be based on the operating system if not run through an internet application. Do your research, take advantage of free trials, and find a system that works for you. If you plan on using a bookkeeper to help you with your “books”, find out what software is well supported in the field by reputable bookkeepers to give yourself options on who you can work with.
3. Speaking of bookkeepers… Do some research and decide if maintaining your books and expenses are something that you feel confident in doing yourself or whether you would prefer to delegate and outsource this task. While no one likes to spend more money, having a great bookkeeper to keep you solid and organized can be the difference between a nightmare audit and a clean and simple tax return. A good bookkeeper will know how to organize your files so that the information you present to your accountant and report to the IRS is accurate and as straightforward as possible. If you don’t have the funds or desire to hire a bookkeeper, consider taking some basic accounting classes online or at your local community college or business resource center. Arming yourself with some basic knowledge of accounting principles and getting to know your record keeping system can make a world of difference in both your tax filing confidence and business confidence all around. Don’t underestimate the details- they matter!
4. Keep business expenses and personal expenses separate. If you don’t have a separate account for your business (which you most likely should), at least use a separate credit card for purchases you make so you can easily set them apart. Again, talk with your accountant on how they prefer you set up your banking and business in general. Commingling personal and business expenses can get really sticky, really fast. Working for yourself in a contractors (or freelancers) capacity can be empowering and enlightening. There can be so much newfound freedom and confidence in setting your own terms, your own rules, and your own hours. Just remember, that along with this newfound freedom will come newfound responsibility, specifically when it comes to taxes and the like. By being proactive and getting an early handle on these items, you are more likely to save yourself from tax-related heartache.