By Melissa Starr, #GoGetItLIFE Contributing Writer
Tax time is here again and everyone is looking forward to getting back the biggest refund possible. Many people choose to take their tax documents to a certified accountant, or accounting firm, like H&R Block. Other people do their taxes online using programs like TaxAct or TurboTax. However you choose to file your taxes, it is usually a simple, relatively painless process, as long as you are an employee and not a business owner or independent contractor.
If you own your own business, or contract your services, you are considered self-employed. Gone are the days of filing a 1040EZ and being done with it, because now you have to file and pay ALL your taxes, since an employer is not taking care of half of them for you. This means ALL your federal tax obligation, ALL your state tax obligation (if you live in a state that has state income tax), ALL your Medicare tax obligation, and ALL your Social Security tax obligation. If this is the first year you have done this, prepare to be overwhelmed. Even if you have filed this way before, tax time is probably not a time you look forward to, even if you do expect a refund.
Business owners who generate a fair yearly income can usually pay someone to take care of this for them, which makes it much easier to deal with during the first quarter of the New Year. Small business owners looking to penny-pinch may try to do this themselves, or have one staff person designated to do their taxes each year. Independent contractors who work from a home office might choose to do this all on their own, with little help, because they simply cannot afford it. Even though doing your taxes can be stressful if you are not an employee, it doesn’t have to ruin the first quarter of the year every year.
There are many deductions a business owner or independent contractor is eligible to take to reduce their tax obligation. First, a business owner can deduct the expenses they incur to run their business. An independent contractor who works from home can deduct a portion of their rent or mortgage and utilities proportionate to the space they use to operate their business. If an independent contractor is continuing their education, there are education credits they may be eligible to take.
The IRS has a plethora of information available on their website with regard to credits and deductions for business owners and independent contractors. Check out this page:
Deducting Business Expenses: https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Deducting-Business-Expenses
Some education credits have limitations for eligibility, and some are not refundable but can reduce your tax obligation. Again, the IRS lists these credits and their eligibility requirements on their website. Check out this page:
Education Tax Benefits: https://www.irs.gov/uac/Tax-Benefits-for-Education:-Information-Center
A lot of times, it is more advantageous for business owners and independent contractors to pay their taxes quarterly, which prevents them from having to owe a large lump sum at the end of the year and be subjected to possible penalties. If quarterly payments are not feasible because the income generated is too low, then yearly payments make the most sense, but be prepared to take as many deductions as you are eligible for to minimize your total tax obligation. The IRS goes into detail on their website about estimated tax payments, who needs to make them, and the payment deadlines for each quarter. Check out these pages:
Quarterly Estimated Tax Info for Small Businesses and Self-Employed Taxpayers: https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Estimated-Taxes
Self-Employed Tax Obligations and Info: https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Self-Employed-Individuals-Tax-Center
Quarterly Deadlines to Pay Estimated Tax: https://www.irs.gov/publications/p505/ch02.html#d0e6371
The IRS is nothing to fear, so long as you are an honest taxpayer. Learn as much as you can about what deductions you are eligible for, and you might actually start looking forward to tax season again, if you are a business owner or an independent contractor. Save money by doing taxes yourself instead of hiring someone to do them for you, because you are just as capable of finding out what deductions you are eligible for as they are.
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