Typically, paying taxes is more complicated if you’re self-employed. One of the complications you face is that you have no employer who can promptly take care of your tax obligations. And since you have no one to handle these matters, you need to be familiar with the fundamentals of paying taxes yourself.
Fortunately, these tips can help you navigate this situation more efficiently:
Separate Your Business Revenue From Your Wages
As a self-employed person, it’s crucial that you separate what you earn from your business from your wages. Doing so can help streamline the calculations of your tax obligations. When you have a separate record of what you’re paying yourself and what belongs to the business, you can avoid mixing up values that could affect the amount you owe the government in taxes.
That being said, you need to make sure you keep separate bank accounts for business profits and your wages to avoid confusion when paying for your taxes.
Learn How Your Business Structure Can Impact Your Tax Liability
When it comes to paying taxes, it’s also best that you learn and understand how your business structure can influence your tax obligations. When you’re self-employed, you have the opportunity to choose your own business structure. Usually, your standard options are to operate the business under a sole proprietorship or partnership or run an S corporation. These options are popular because keeping your business structure simple makes it easier for you to file and pay taxes.
However, whatever structure you choose, you need to understand the tax rules, prerequisites, and liability protections to ensure smooth payment of taxes. Doing so can give you peace of mind, knowing you’re handling your taxes correctly and without any trouble.
Conduct Tax Planning Early
As a self-employed taxpayer, you should conduct tax planning and preparation as early as possible and not just during the tax season. That way, you can prevent any tax problems that may arise throughout the year. To ensure successful payment of taxes as a self-employed person, consider the following factors:
- Income Taxes: For self-employed individuals, paying income tax is mandatory. So, instead of receiving a huge tax bill for the payment of income tax, start setting money aside to cover these expenses. Create a bank account intended for tax payments only so you’ll have your money ready when you’re ready to pay your income tax.
- Tax Deductions: Aside from paying income taxes, being a self-employed person may also allow you to avail of some tax deductions. This means you can claim some of your business expenses as deductions to pay less tax.
As you can see, tax planning for self-employed taxpayers can become a complicated undertaking if you have no idea where and how to start. Thus, you may need to speak to an experienced accountant who specializes in tax accounting for help. They’re well-versed in the different taxation rules in your state, so they can advise you on what to do to guarantee a hassle-free payment of taxes.
Automate Your Recordkeeping
For self-employed people, it’s vital to automate your recordkeeping efforts to streamline your payment of taxes. While the traditional way of recordkeeping isn’t extremely difficult, automation is needed to ensure you keep a record of all crucial information.
To help you with this process, using reliable finance software can be a good option. They can synchronize your bank accounts and other financial transactions. In turn, you can minimize your mistakes and save you more time when paying taxes.
Stay On Top Of Various Tax Issues
Another tip for successfully paying taxes as a self-employed person is to understand the various issues surrounding your tax obligations and make sure you stay on top of them. By doing this, you can prepare various plans to mitigate the risks and avoid hefty fines and penalties, thus saving some money in the long run.
Remember, a single tax issue may result in several significant legal consequences, including possible jail time. Thus, it’s best to be one step ahead of any tax problem to maximize your payments.
Open A Retirement Account
If you’re looking to save some money when paying your taxes, then opening a retirement account can be a great option. Since most self-employed individuals don’t have employers who can provide a 401(k) plan for themselves, they need an individual retirement account to claim a significant amount of deductions for their taxes.
In addition to business expenses, retirement savings accounts can also help reduce the amount of taxes you need to pay to the government. This way, you can set aside more tax-free money. The common retirement accounts for self-employed include a solo 401(k), a simple Individual Retirement Account (IRA), and a Simplified Employee Pension Individual Retirement Arrangement (SEP-IRA).
Get Professional Help If Necessary
Beyond the items listed here, there are plenty of other things to learn about regarding the different tax rules for self-employed people. Aside from tax accounting, you may also need to deal with many rules and regulations when paying certain taxes. Hence, it’s essential to get the necessary help for your situation.
You can do this by working with dedicated tax lawyers and certified public accountants. They’re the best professional resources for a variety of tax-related concerns. These can include determining the correct type of business structure, identifying the appropriate deductions you’re allowed to avail of, understanding tax liabilities in a balance sheet, and many more.
Indeed, there are many things about taxes you need to know more when you’re self-employed. This is one reason you should plan and prepare ahead to ensure successful payment of taxes and protect yourself from any issues.
By keeping these tips in mind, paying taxes and handling other tax matters won’t have to be a headache. You can set yourself up both financially and legally if you learn to separate your business revenue from your wages, automate your recordkeeping, and open a retirement account. Moreover, don’t be afraid to ask for help from professionals.