Taking the leap into starting your own business is an exciting and stressful time. Typically, your employer takes out Federal and state income taxes and various other withholdings every paycheck and you just file a simple return once a year. Freelancers don’t have that luxury. According to the IRS, NYS freelancers and sole proprietors are required to take both self-employment tax and income tax out themselves and pay it quarterly. At Davie Kaplan CPA’s we understand that as a business owner, you have a lot more to worry about than the looming tax season that’s why we’ve compiled a list of tips and tricks to make your taxes safe and smooth.
Creating a separate business card and business bank account to charge all of your business expenses and to track revenue flow can drastically reduce your headache come April. A separate account with only business transactions can make your finances organized and more readily available in the case of an audit. By comparison, if you keep your business and personal account together when tax season rolls around, you and your tax advisor will have to go through all of your transactions with a fine-tooth comb to determine business vs personal finances.
As a self-employed business owner, you are entitled to different tax deductions than a typical employee. It’s important to take advantage of all of the deductions you are entitled to so you can save yourself some money during tax season. According to federal tax law, self-employed freelancers are entitled to write off:
· Home Office – If you have a dedicated space in your home you use solely for work, you can use this as a deduction. The catch is you can only use this space for an office and nothing else.
· Travel – If travel is necessary for your job, you can claim it as a deduction. You just have to be able to prove it was for solely work purposes.
· Materials – If you need to purchase materials to get your freelance job done. For example, a camera for a photographer or art supplies for a painter, you can deduct these, if proven to be solely for business.
· Education – If you are taking classes or certification courses to better your job, this education can typically be tax-deductible.
· License – If necessary to provide your services, these expenses can typically be deducted too.
Pay Your Taxes Quarterly
Paying your income tax quarterly is a must for all freelancers. The government requires quarterly payments if you owe more than $1,000 every 3 months. The easiest way to estimate if you will owe more than $1,000 is to look at last year’s tax return. But officially, to figure out how much tax you will pay you will need to fill out the 1040-ES form.
When it comes to owning your own business, taxes can be a huge hurdle to overcome, especially if you have no prior tax experience. At Davie Kaplan we have the resources and expertise you need. if you have any questions, comments or concerns with your freelance or sole proprietor tax requirements in New York State, please don’t hesitate to reach out here.