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If You’re Self-Employed, Don’t Make These Tax Mistakes By Jim DePalma

Tax Mistakes

Being self-employed can be both liberating and challenging. The freedom to create your own schedule and work on your terms is undoubtedly appealing. However, when it comes to taxes, the self-employed often face unique challenges that can lead to costly mistakes. To ensure you stay on the right track and adhere to tax laws, keep an eye out for these common tax mistakes that Jim DePalma highlights in this post made by the self-employed.

Jim DePalma Lists The Tax Mistakes That You Do Not Want To Make If You’re Self Employed

1. Not keeping accurate records

The importance of keeping accurate records cannot be overstated, says Jim DePalma. Maintain a well-organized system to track your business expenses, invoices, and payments, including mileage, equipment costs, and home office expenses. Proper record-keeping helps you claim all eligible deductions during tax season, ensuring you pay the correct amount in taxes, protecting yourself from potential audits, and making your life much easier when it’s time to file.

2. Failing to pay estimated taxes

The self-employed are required to pay estimated taxes quarterly, which go toward their annual income tax, Social Security, and Medicare obligations. When you’re an employee, these taxes are taken out of your paycheck automatically, but as a self-employed individual, it’s your responsibility to make these payments. Underpaying or missing these deadlines can result in penalties, so be sure to set aside a portion of your income every month for taxes and make your payments diligently.

3. Misunderstanding business deductions

One of the most appealing aspects of being self-employed is the ability to write off various business expenses. However, this can be a double-edged sword, as many self-employed individuals either inadvertently over or under-deduct their operating costs. Be sure to familiarize yourself with the IRS guidelines for deductible business expenses and avoid claiming personal costs in the guise of business expenses. Consulting with a tax professional can provide valuable advice when it comes to accurately and legitimately claiming deductions.

4. Misclassifying workers

Businesses that engage contractors or freelancers must ensure these workers are classified correctly. You might be tempted to label them as independent contractors, which would excuse you from withholding employment taxes or providing benefits. However, if the IRS determines that these workers should be classified as employees, you could face significant penalties. Evaluate the level of control and financial involvement you have with your workers, and follow the IRS guidelines for proper categorization.

5. Neglecting to report all income

Whether it’s intentional or unintentional, not reporting all of your income is a mistake that can lead to serious consequences. As a self-employed individual, you receive a 1099 form from each client that pays you $600 or more during the tax year. However, even if you don’t receive 1099 from a client who paid you less than $600, you are still required to report and pay taxes on that income. Always maintain accurate records of all your earnings to avoid an audit or penalties.

6. Filing your taxes late

According to Jim DePalma, as a busy self-employed professional, it’s easy to lose track of time and miss important tax deadlines. Failure to file your tax return on time can lead to late filing penalties and interest charges. Keep a calendar of all tax-related deadlines, and make a point to file your taxes well before the due date.

7. Not seeking professional help

Taxes can be confusing, especially for the self-employed. Even if you’re confident in your ability to file your taxes, it’s always a good idea to consult with a tax professional. 

Jim DePalma’s Concluding Thoughts

It’s important, as per Jim DePalma, for anyone who is self-employed to take the necessary steps to avoid making mistakes when it comes to their taxes. Whether you’re not submitting a return by the deadline, forgetting to include deductions, or taking time off during the season, there are several mistakes that you should work hard to avoid. It may be intimidating at first, but understanding your tax responsibilities and filing correctly can save you from serious consequences. If you feel overwhelmed by the process, consider enlisting help from a professional accountant or an online tax filing service — whatever route you decide to take, keeping up with your taxes can bring peace of mind and help ensure that you’re on the right side of the law! Failure to follow the rules and regulations could cost you big down the line.