More and more individuals are pursuing going into business for themselves, preferring to have control over their career rather than reporting to a chain of command within a company. Becoming self-employed can be nerve wrecking, as you have no way of guaranteeing the future. No matter how successful your first year of being self-employed went, you’re probably dreading tax season. Taxes aren’t something anyone really enjoys doing, but being self-employed can make filing your taxes a much more daunting task.
How do self-employed taxes differ?
When you have an employer, they withhold your income and Social Security and Medicare taxes every year. Sometimes, they withhold too much, resulting in a tax return when you file your taxes. Being self-employed means that no one is withholding these taxes for you, which results in having to pay these taxes when it comes time to file your taxes.
Instead of getting a W2 form 1040 in the mail at the beginning of the year to make filing your taxes a simple task, you have to fill out your 1040 form yourself. While this may seem difficult, after doing it a few times you’ll be filing your taxes yourself with ease. The IRS website has a lot of resources to access these forms and instructions on how to fill them out.
Even when you’re not self-employed, you’re sometimes eligible for certain deductions that will save you some money when filing your taxes. When you’re self-employed, you’re eligible for a few different deductions. For example, if you work out of a home office, it’s possible you’ll be able to deduct some of the expenses of your home. This is called the home office deduction, and is available to both homeowners and renters.
Something important to remember throughout the year to make your tax process easier, is to not only keep track of your income, but also your expenses. Save any receipts that you got from business expenses. For example, if your line of business requires you to travel a lot, save receipts from gas stations, purchasing airline tickets, and business related hotel stays.
Save 30% of your income
You don’t want to be blindsided when it’s time to pay your taxes. The easiest way to prevent having to pay a lot out of pocket every spring, is to put away 30% of your income every month, so you have money in your savings for all of your Self Employment Taxes.