How to Make Taxes Easy When Self-Employed: Part 2
Looking for more advice on how to make filing self-employment taxes easier? You’re in luck! The conversation continues here with more tips and tricks to help you stay organized throughout the year and make filing your taxes a breeze.
Reconcile Financial Accounts Monthly
One of the most dreaded words in bookkeeping is the “R” word. However, keeping up with this process will help make your work easier and reduce the stress you’re feeling during the season.
One of the most critical steps you should take when completing your bookkeeping is ensuring that all of your financial data is complete. A reconciliation process will help ensure that the information in your program matches the information in your bank accounts.
Every month, check the transactions you’ve made on your statement and the ones that match the ones you’ve made in the bookkeeping program. Having the end balance in your program that matches the end balance on your statement will help you keep track of your financial data.
If you overreport your income, you could pay the IRS more than you should. If you underreport your expenses, you could owe the IRS a considerable amount. Doing so may also result in you getting caught and paying additional taxes.
If you’re self-employed, ensure that your financial accounts are reconciled by the end of the year. Doing so will allow you to track all your financial transactions. Taking time to do this every month will make it much less stressful when tax season rolls around.
Scan Documents for Easy Organization
If you tend to lose documents, the IRS will allow you to use digital and paper receipts for tax purposes. To ensure that you have a clear picture of the entire transaction, make sure that you take photos of the documents. You can also purchase a receipt scanner, which can be found at any office supply store.
Although you may already have a digital file, you still need to keep it organized in case the IRS issues a question. Having a receipt tracking app will allow you to keep track of all of your transactions. There are several different programs that you can choose from, and you can find one that works for you.
Don’t Forget Business Mileage & Home Office Expenses
If you’re self-employed, take advantage of the various tax breaks that are available to freelancers. For instance, you can take advantage of the business mileage deduction.
The deduction for business mileage is based on the standard mileage rate that the IRS sets each year. For instance, in 2020, the rate is 57.5 cents per mile. This means you can deduct the amount of money you spend on business travel.
The concept of business mileage is that it refers to the miles that you travel to and from your primary office location. However, if you rent an office outside your home, you can’t write off the miles you travel there.
If you have a home office, you can take advantage of the home office deduction. This can lower your tax liability by allowing you to write off a portion of your household expenses. These include mortgage interest, property taxes, and homeowner’s insurance..
Having a sound recordkeeping system is essential when it comes to filing your taxes. Before preparing your returns, you must record all your household expenses. This will allow you to track all your income and expenses for the year.
Originally published at MurryEnglardCPA.com