Maximising deductions for the self-employed: Common mistakes to avoid
January 14, 2023
Maximising Deductions for the Self-Employed: Common Mistakes to Avoid
As an independent contractor, it's important to maximize deductions and minimize your tax burden for the upcoming tax season. Sure, you may have a few basic deductions you claim year after year, but there are various mistakes that you may be making along the way.
1. Be aware of the home office deduction requirements.
If you use part of your home office exclusively for business, you can typically take advantage of the home office deduction. However, there are certain requirements that must be met in order for the deduction to be allowed. This includes tracking the time you spend in the office and documenting any business-related expenses.
2. Don't treat yourself as an employee.
When you're a self-employed individual, do not treat yourself as an employee. This means avoiding filing your taxes using a W-2 form, as you are a legally independent contractor. Filing taxes as a self-employed worker requires a different form and different calculations, as you are responsible for both halves of the Social Security and Medicare taxes.
3. Consider the implications of different business structures.
If you are considering creating a business, make sure you understand the various implications that come along with the different structures. Corporations and LLCs can be more complicated than other business structures, and the potential tax implications differ. Speak with a tax professional to understand which option works best for your situation.
4. Pay attention to personal versus business expenses.
Be mindful of personal versus business expenses at all times. Make sure you're using your business-related expenses to calculate your income accurately, and make sure you're deducting all of your eligible business expenses.
5. Keep accurate records.
The most important thing to do when claiming deductions for the self-employed is to keep accurate records. You'll need to be able to back up any deductions that you claim, so make sure to keep track of all relevant documents, including receipts and invoices.
What You Can Do to Keep Track:
Start collecting your paperwork now.
Gather any paper or digital records that pertain to your self-employment income or expenses throughout the year, including receipts, bank statements, invoices, or any other documents that could help you prove the validity of your deductions.
Use a reliable accounting software
A reliable accounting software will help you keep track of your finances and simplify the process of filing your taxes. It will also help you stay organized, ensuring that you don't miss out on any potential deductions.
Separate your personal and business accounts.
Make sure to keep your personal and business accounts separate to make it easier to distinguish between personal expenses and business-related expenses.
Speak with a tax professional.
It's always wise to consult a professional before filing your taxes, so you can make sure you're taking all the necessary deductions and making calculations accurately.
Conclusion
Taking the extra steps to avoid these common mistakes can save you time and money come tax season. Establishing the proper procedures now can help you maximise deductions for yourself as a self-employed individual.
