Get Organized: Prepping for Your Self-Employed Taxes

Taxes can be confusing and complicated, especially if you’re self-employed. To make tax season a little less stressful, we’ve compiled a list of the most common documents you’ll need to prepare your taxes as a self-employed individual. 

Get Organized

The most important document for preparing your taxes is your 1099-MISC form. This form is sent to you by any client or customer who has paid you more than $600 in a given year. The 1099-MISC includes information like your name, address, and Social Security number, as well as how much you were paid by each client or customer. It’s important to keep track of all 1099-MISC forms you receive throughout the year so that you can report all of your income come tax time.

Next, make a folder on your computer called Taxes_YEAR and add any digital documents to this folder like:

 scanned copies of receipts, invoices, and canceled checks related to business expenses

 electronic records of mileage driven for business purposes

 bank statements showing interest earned on business accounts

Closing Out Your Books

As a self-employed individual, it is important to keep accurate records of your income and expenses throughout the year. Not only will this make tax preparation easier come tax season, but it will also give you a better understanding of the financial health of your business. One of the most important steps in keeping accurate records is closing out your books at the end of each year.

What is Closing Out Your Books?

Closing out your books simply means ensuring that all of your income and expenses have been accounted for and properly recorded. This may involve reconciling your bank statements, categorizing transactions, and entering data into your accounting software. Depending on the size and complexity of your business, closing out your books can take anywhere from a few hours to a few days. 

Why is Closing Out Your Books Important?

There are a number of reasons why closing out your books is important. First, it provides you with a clear picture of your business’s financial health. This information can be useful in making decisions about how to grow or expand your business. Additionally, closed books are required for tax preparation. Without closed books, you may not be able to take advantage of certain deductions or credits come tax time. Finally, having closed books can help you avoid penalties and interest charges if you are audited by the IRS. 

How to Close Out Your Books

If you are using accounting software, the process of closing out your books will likely be fairly straightforward. However, if you are keeping manual records, you may want to consider hiring a professional bookkeeper or accountant to assist you in ensuring that everything is properly accounted for. Either way, it is important to make sure that all income and expenses have been accounted for before initiating the closure process. 

Auto Deduction 

Are you self-employed and taking the business use of automobile deduction on your taxes? If so, there are a few things you need to have ready before you file. Here’s what you need to know to make sure you’re prepared.

Gather Your Receipts

The first thing you need to do is gather all your receipts for auto expenses. This includes gas, oil changes, repairs, and any other expenses related to the operation of your vehicle. Keep in mind that you can only deduct the portion of your expenses that are related to business use. So, if you use your car for both business and personal purposes, make sure to keep track of the percentage of time it is used for each.

Determine Your Method of Calculation

There are two methods you can use to calculate your deduction: the actual expense method or the standard mileage rate method. The actual expense method allows you to deduct all the costs of operating your vehicle, including gas, oil changes, repairs, insurance, and depreciation. The standard mileage rate method allows you to deduct a set amount per mile driven for business purposes. Which method you use will depend on which gives you a greater deduction.

Get Your Documentation in Order

In order to take the business use of automobile deduction, you must have documentation to back up your claim. This includes records of your business trips, such as a logbook or calendar entries detailing where you went and what business purpose was served by the trip. You’ll also need receipts or invoices for any expenses related to the operation of your vehicle that you plan on deducting. Make sure everything is in order before you file so there’s no delays in processing your return. 

The Home Office Deduction

The home office deduction is a great way to save money if you’re self-employed. But how do you know if you qualify, and how much can you expect to save? In this blog post, we’ll break down everything you need to know about the home office deduction so you can take advantage of it come tax time.

What Is the Home Office Deduction? 

The home office deduction is a tax deduction that allows you to deduct a portion of your rent or mortgage, utilities, insurance, and other expenses related to the maintenance of your home office. To qualify for the deduction, your home office must be used exclusively for business purposes. This means that you cannot use the space for any personal activities such as watching TV or working out. 

How Do I Qualify for the Deduction? 

To qualify for the home office deduction, your home office must meet one of two criteria: 

1) It must be your principal place of business, which means that you use it regularly and exclusively for business purposes. OR 

2) It must be a place where you meet or deal with customers, clients, or patients on a regular basis. 

If your home office meets either of these criteria, you can deduct a portion of your rent or mortgage, utilities, insurance, and other necessary expenses. 

How Much Can I Deduct? 

The amount you can deduct depends on the size of your home office. For example, if your home office is 200 square feet and your home is 2,000 square feet, you can deduct 10% of your rent or mortgage interest, utilities, insurance, and other necessary expenses. However, if your home office is 400 square feet and your home is 2,000 square feet, you can deduct 20% of those same expenses. 

Keep in mind that you can only deduct the portion of expenses that are attributable to your home office; you cannot deduct 100% of those expenses even if your home office occupies 100% of your home. 

Talk to your Tax Preparer

It’s that time of year again! You’ve gathered all of your receipts, put everything into neat little piles, and you’re finally ready to file your taxes. But wait, there’s one more thing you need to do before you can file…

The final step is to contact your tax preparer and check in to see if there is anything else they need from you. If so, gather that information. Once you have everything your tax preparer needs, they’ll be able to do their job and get you the best possible refund (or at least minimize the amount you owe). 

Filing your taxes doesn’t have to be a nightmare. By taking some time to get organized and familiarize yourself with the process, you can ensure that everything goes smoothly come tax season. So take a deep breath and relax—you’ve got this!