Freelance taxes can affect you if you have decided to do your own thing and set up your own online business.
More and more people are deciding to work as self-employed and wave goodbye to mean bosses!
Moreover, people who have been employed in traditional work settings are finding it necessary to supplement or replace their income streams.
While some voluntarily leave their jobs others may be the product of downsizing and layoffs.
But many who retain a passion for their profession find alternatives, such as freelancing, to get back in the workforce or start creative entrepreneurship.
If this is the same for you, then it is important to stay abreast of tax laws.
Because they can impact on your finances and they change every year.
As a guideline here is three important tax considerations for you:
Tip #1 Reduce Taxable Income
When filing freelance taxes many self-employed business owners are surprised to find that they could have lowered their taxable income and paid less in taxes during the year.
It is important to have a plan in place that includes tax reduction strategies.
For example, one often missed tactic is retirement savings.
Contributing to a Self Employed Pension Plan is a great way to accumulate non-taxable savings and keep more of the money you earn.
Speak with a tax expert to ensure that you are maximizing benefits in this area.
Tip #2: Remit Estimated Tax Payments
Remember those income tax withholdings are not taken out of payments that you receive as a freelancer.
But just because no tax is withheld does not mean that the government is not looking for you to send in your freelance taxes.
The top concern for most freelancers is, how much to pay in estimated taxes and when to send them in.
To determine the amount of taxes due you will need to compute your gross income.
A freelance tax calculator and tax calendar are resources that help you estimate amounts and make timely payments.
Additionally, if state and local taxes apply, you will need to remit payments to them as well.
Tip #3 File the Right Tax Forms and Re-Invest
In a nutshell, freelancers can choose to operate as one of several business entities.
This includes Sole Proprietor, Partnership, Limited Liability Company, “S” Corporation, or “C” Corporation.
Each of these options uses a different tax form for reporting purposes so make sure that you know which one to apply.
Working as a freelancer has many benefits including flexibility and limitless income potential.
At the end of the day, it is not only how much you make that matters.
It is how much you are able to reinvest and multiply to create the dream lifestyle that you desire.
Tax preparation and filing can sometimes be a complicated process and thus, require professional services of a tax accountant or a CPA.
It’s the time of year to fall in love with your tax specialist!
From financial planning to money management tips and money issues, it is essential to plan your income tax filing in advance so as to utilize all available benefits to save tax.
Some of the best tips to save tax include:
a) Capital Gains
If you have had good capital gains income, it is best to save tax by selling off your bad investments or loss-making stock options.
Thus, you are eligible to claim a capital loss and can save a part of the tax on your income.
While some of the losses can be offset against some of the capital gains.
b) Get the Upgrades
Have you been thinking about energy upgrades in your home?
Green energy upgrades not only help you aid conservation of environment but energy efficient upgrades are eligible for tax deductions.
So, it is a good idea to do it within this financial year due to higher deductibles and more credits available for better energy upgrades.
Here’s an example in regards to travel.
When you have the extra dosh, personally, I would fly via private jet and enjoy my business travels in style plus save a boatload of time.
There are some luxuries in life that are actually necessities – providing you have the income!
c) Early Payments on Taxes and Mortgages
The best method to lower your taxable income and get better deductions is to pay off your mortgage and property taxes early.
However, it may add up to a higher tax bill for the next financial year but for now it will be one less bill payment and tax saving.
This is a complicated area so before doing so always check in with an expert to see if it matches your situation.
Freelancer, and hiring freelancers, is a great way for people to have freedom at their jobs and for companies to have expert advice as they need it.
When used properly the system works best for all parties. Win, win, win!
But before accepting a freelance contract or hiring a freelancer, make sure you know what the freelance taxes rules and regulations are.
Or you could find yourself working for free–or owing thousands of dollars to Uncle Sam!
Having a tax advisor or a CPA can help you save thousands of dollars that you can reinvest in your own business for added profits.
To learn more about tax requirements and strategies for freelance business owners check out the freelance tax calculator and other tax tools that will help you maximize the money you earn in business.
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