Tax Pitfalls that Every Self Employed Individual Should Avoid
We are living in a world that is constantly changing, and there is a rise in the international connectivity and high-quality consumer technology that has resulted in a rise in a gig economy. This has resulted in people taking their careers in the hands and working for themselves in various 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 a beginner, it is essential that you avoid these common tax pitfalls.
Failure to Recognize Yourself as a Freelancer
Many people make money freelancing as a side gig alongside their day job and assume that because they are paying tax at work, they do not have to pay tax on their freelance wages. Such people have the same tax obligations as a full-time freelancer, and they must, therefore, pay the income tax and the self-employment tax.
Not Getting the Needed Assistance
As a freelancer, you must recognize the fact that time is money. Whether freelancing is your living, or you do it as a side gig, it is important to reach out to people who can offer assistance with your taxes and avoid overspending. If you find yourself reviewed, the most prudent investment that you could ever make is hiring a tax controversy attorney. Also, by entrusting your accounting and bookkeeping to a professional will save you time and money in the end.
Not Tracking Your Expenses
Obviously nobody wants to start another financial year with disappointment by tracking to track their financial records without any success. 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. 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.
Having This is mind, it is 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 you work from your home, a portion of your mortgage interests and rent, property taxes and utilities can be deducted as well as any expenditure on the office supplies, computers and on the internet and phone 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.