Taxes are challenging, especially when you’re self-employed. Use these five tips to streamline your tax process and save time this coming year.
1. Maintain an organizational system to save time
Since you need the same basic documentation every year, even the simplest steps to getting organized will save you time. Begin by reviewing the list of needed materials, which includes receipts and forms demonstrating all income and expenses (e.g., W2s, 1099s and interest statements from stocks and bonds). Review all bank statements for deductible expenses, such as business lunches, business cards, office flowers and professional training. As Intuit notes, the IRS often takes a closer look at solo entrepreneurs, especially those that take a home office deduction. Get your records in order now so that they’re ready in the event of an audit.
2. Track down information to minimize delays
As you get organized, you may discover you’re missing documents. Get on top of this now by calling clients, reaching out to your bank to get duplicate bank statements, reviewing your bank and credit card accounts for discrepancies and so on. At this time, determine how to handle any expenses that are both business and personal. If you bought a new truck to haul supplies but also use it for grocery shopping, do your best to evaluate its personal use vs. professional use now. Any information you need to prove your business use, obtain at this time.
3. Understand how to classify contractors and employees
As a solopreneur, you may have hired a part time or temporary employee—and this person needs to be classified properly for tax purposes. Generally, you’ll be using a contractor so you do not have to withhold tax money. If you try to get by with a contractor who should be an employee, you can run into trouble. Have that person complete a 1099 form so you can report her earned income to the government. If you use Intuit payroll services, you can easily complete the needed paperwork and send it directly within the system.
4. Start saving for your SEP tax
Solopreneurs are subject to a self-employment or SEP tax, which is around 15.3 percent. In essence, you are responsible for paying your own taxes since no company is withholding income and sending it to the IRS for you. Consider using a money tracking app like Mint to establish a savings goal and automate regular savings. This way, you can pay your taxes without cutting into your cash flow.
5. Seek help early
If you’re confused or short on time, look for an accountant who specializes in solopreneur taxes. You’re best off finding an accountant before mid-April, so she can devote the full time needed to your finances and maximize your deductions.