Common Tax Mistakes of the Self-Employed

If you are self-employed or thinking about becoming self-employed you need to be aware of the common mistakes people make when starting out. It is a great feeling to be your own boss, have your own business and start relying on yourself for your future. However, with that great feeling comes some big responsibilities. Being self-employed changes the way you have dealt with taxes forever!

You no longer have an employer to automatically deduct FICA taxes for you. You no longer have the flexibility of just filing your taxes at the end of the year. Everything changes from the IRS perspective. You must pay SECA taxes (Self-employed contribution act) as well as your regular federal and state income taxes.

You may need to file your taxes on a quarterly basis instead of waiting till the end of the year. Many newly self-employed people are not aware that if they wait till the end of the year and the IRS says you should have been paying quarterly, even if you pay every dime that is due in April, you will still be hit with underpayment penalties! These add up very quickly and can throw your budget into chaos!

Another common mistake of the newly self-employed is realizing that they now have many new deductions that were not available to them when they worked for someone else. Everything changes when you become self-employed! Here is a list of the most commonly forgotten tax deductions available to the self-employed. (Always check with a qualified tax professional to find out how much and what specifically you qualify for when it comes to deductions, don’t assume anything)

Licenses – Many cities require you to obtain a business license if you want to be self-employed, you must pay for this license and it very often can be deducted on your taxes.
Subscriptions – Any magazine or periodical that you subscribe to as a direct result of your business, you may be able to deduct these subscription fees.
Cellular and Telephone bills – any calls for business purposes are considered deductible on your taxes
Meals & Entertainment – Anytime you take a client or potential client out to dinner or to an event and discuss business you can deduct up to 50% of the cost on your taxes.
Travel – Any travel for business purposes is considered tax deductible.
Advertising or Promotion – Anything you buy to advertise your company, be it t-shirts, coffee mugs or advertising space in the media is considered tax deductible
Office Supplies – keep your receipts for all office equipment and supplies! These are all deductible when you are self-employed

These are just a few of the most commonly missed items that can be tax deductible when you are self-employed. It is highly recommended that you contact a tax professional to help you take advantage of every deduction available for your particular situation! Why pay more to the IRS than you absolutely have to?

Being self-employed is extremely rewarding, but remember you are responsible for paying the IRS and if you don’t they will find you!