First Year Filing Taxes As A Self-Employed Person? Tips For You
If you have recently decided to go into business for yourself, whether it is as a freelance writer or consultant, or you have opened your store or other business, one of the many challenges that you will face in the next fiscal year is filing your taxes. Filing taxes as a person that is self-employed is quite a bit different from filing taxes as a wage-earning employee of a company. The first year, these changes can throw you off if you do not know how to prepare yourself to deal with them. Get to know some of the best ways to do just that so you can avoid any major faux pas in your first year of self-employment that could cost you dearly come tax season.
Be Sure You Hire a Tax Preparation Service Right Away
One of the first steps you will want to take when you embark on your self-employment adventure is to find and hire a tax preparation service that can help you not only file your taxes at the end of the year but can also help you to get everything in order for your taxes from the first payment you receive as a self-employed worker.
There are many ways that you can go about finding a tax preparation service or provider. One of the options is to seek out a Dave Ramsey endorsed local provider. What this essentially indicates is that personal finance guru Dave Ramsey has researched local tax professionals and made recommendations as far as who provides the best services at the most reasonable prices.
You can also go about the selection process entirely on your own. If you do this, be sure that the tax professional you are working with is knowledgeable about the unique circumstances of a person that is self-employed filing taxes. For example, when a person works for a company, their employer pays a portion of their income tax obligation. However, when you are self-employed, you are solely responsible for the full tax rate on all of your income.
Do Not Skip Your Quarterly Estimated Tax Payments
The IRS has different rules for people filing taxes as a self-employed person than as an employee of a company. One of those differences is that a person working for a company, receiving W-2 forms, only has to deal with their taxes once a year. However, if you are self-employed, the IRS requires taxes to be paid quarterly (four times a year).
If you are self-employed and you do not pay these estimated tax obligations by the quarterly deadlines, you will receive a late payment penalty when you go to pay your taxes in April. The exact amount of that late payment fee will depend on how much you made in the fiscal year, with the more money earned meaning a larger penalty. It is best to avoid these unpleasant surprises and pay your estimated taxes quarterly.
Your tax preparation expert can help you estimate these tax obligations using a formula that takes into account your estimated wages earned, the tax rate for that income level, your estimated deductions (i.e. for home office, vehicle use for business, and the cost of equipment and supplies for your work that may come out of your wages), and give you an amount to pay the IRS every quarter. If you prefer to play it safe, you could also simply set aside 25 to 30 percent of your income and pay that amount quarterly for taxes. Then, if you paid in too much when you file your taxes, you will simply receive a refund.
These basic tips will help you with your taxes as you embark on your self-employment journey for the first time.