Paying taxes should be a priority for everyone, no matter the line of business. One of the areas where the government shows incredible seriousness and dexterity is collecting tax debts. Failure to cooperate might trigger jail time or other severe penalties.
No matter how you make money, taxes are essential. However, filing taxes can be complicated, especially for the self-employed and freelancers.
As a result, this article discusses valuable tips with which a freelancer can handle taxes.
File Quarterly
Many people who are freelancing have no idea of the tax implications. People coming from traditional employment do have their taxes deducted automatically, which is easy for them since they handle it. Freelancers do not enjoy this automation, yet they must be up to date with their tax obligations.
It is the norm for employers to file taxes quarterly and freelancers need to take up the responsibilities and also file quarterly. There will be penalties for failure and waiting till April, or a change in due date, before tax payment, will result in you having a hefty tax bill compared to quarterly payment.
Make Your Records Succinct
Again, a traditional employer will enjoy the advantage of impeccable and accurate records kept by the company. As a freelancer, the responsibility lies in keeping correct records and ensuring that all companies you are in deal with make the proper reporting.
Have a document for records every time you are paid. As long as your record is accurate, you can check the company’s record against yours. There could be discrepancies that you will be able to handle before it costs you.
Employ tax Software
The good old excel software is a simple way to keep tax records. It is beneficial and doesn't provide much value besides cross-checking earnings. However, taxes are far from being simple and if they were, tax accountants and lawyers would be out of a job.
When you consider the penalty of wrong filing, it is essential to do everything possible to ensure your report's accuracy.
There is bookkeeping software that keeps the details of every transaction with the organization. With this, you will not pay a penny more than you should.
Always Request Tax forms
Many freelancers are guilty of not collecting all necessary tax forms, which can be bad for tax season. This issue, many times, is not the fault of the freelancer as the company they are in collaboration with needs to send necessary forms and paperwork to them. A lot of companies, however, do not prioritize this.
By law, companies must deliver the correct tax form by Jan 31st. If the forms do not get to you by then, be sure to bug them for it by calling, mail or whatever means. You need those forms to file, and early filing is better for everyone.
Everything Must be reported
Not all companies will send you the form. A non-US company will not send you any form since such is not under IRS law. That, however, does not excuse you from paying taxes. You have to self-report such income. This is where an accurate record comes in.
Also, people with less than $600 earning from any company might not expect any document and it does not exclude the payment of taxes, that you must self-report, as well.
Not doing this can trigger a penalty from Uncle Sam. Bear in mind and it might be difficult for them to detect. But it does not mean you will get away with it.
Your Savings Should be Much
For the traditional employee setting, overpaying taxes is the norm, with refund checks taking care of the excess payment. This is not the same for freelancers. Sadly, the tax structure does not benefit self-employed people.
Social security is one top issue. While traditional workers pay half of their social security obligations, freelancers pay the whole bill. This can disturb any tax obligation.
As a result, a freelancer should be proactive in saving much more than they owe. With this, they can take care of any extra tax debt in case they owe more money. Failure can lead to penalties from Uncle Sam.
FOR MORE INFORMATION ON HOW KAREN MUNOZ, EA. CAN BEST HELP YOU WITH YOUR TAX FILING NEEDS, PLEASE CLICK THE BLUE TAB ON THIS PAGE.
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