5 Tax Filing Strategies for the Self-Employed

In this article, we will discuss tax filing strategies for the self-employed because filing your taxes as a self-employed person can seem like quite a task. And, if you have never filed business taxes before, you might not know where to begin. So let’s get started.

Separate Your Business Finances from Your Personal Finances

Most first-time business owners tend to mix their business and personal finances, which may cause them to mess up when filing their taxes. One of the most common ways most self-employed people get into tax trouble is by having their personal expenses recorded as business expenses.

The first thing you should do when you start a business is to create a new bank account. Having separate accounts makes filing taxes easier. This is because you’ll have your own private personal transactions and clean and accurate business records.

Keep Clean and Accurate Records

Filing taxes is easier when you have accurate records. And having all your invoices and outgoing receipts with you or using software that calculates the taxes is an efficient way to do it. It may also get you out of trouble if the IRS comes knocking on your door.

Familiarize Yourself With All the Tax Jargon

You should take some time and learn all the accounting and tax jargon that will help you understand your finances better. Some of the standard terms you need to familiarize yourself with include:

  • Revenue — the amount you earn after selling your produce/ services.
  • Cost of goods sold — the amount of money you spend producing goods.
  • Gross profits — the amount left over after subtracting the cost of goods sold from the revenue.
  • Net sales — the total profit made after deducting all expenses incurred from the revenue.

Pay the Estimated Quarterly Taxes

The IRS requires all businesses that owe more than $1,000 to pay quarterly taxes yearly. Start by estimating your yearly tax bill and fill out the tax form on the 15th of these months; April, June, September, and January.

Plan for Payroll Taxes

You are legally obligated to pay some employment taxes if you have steady staff on payroll. Some of the taxes you need to consider per employee include:

  • Medicare
  • Federal income tax
  • Social security tax

Some apps and software such as Gusto, Homebase, and ClockedIn can assist you in planning the appropriate employment taxes and ensure you comply with all tax laws.

Get Professional Advice

Taxes can be confusing for business owners; just because you’re good at running a business doesn’t mean you are good at accounting or tax preparation. At Quantum Strategies Wealth Advisory, we take a unique approach and act as “business advisors,” working in collaboration with our clients’ accountants, attorneys, and other professionals. Our team is happy to make an introduction on your behalf to a qualified tax professional. Contact us when you’re ready!

 

Advisory services are offered through Quantum Strategies, LLC dba Quantum Strategies, a Registered Investment Advisor in the State of Pennsylvania. Insurance products and services are offered through William Rizzo, Sole Proprietor.

Year-Long Tax Reduction Strategies for Business Owners

As a business owner, you work hard to keep revenue flowing into your business. To keep growing your company and benefiting more customers or clients, it’s essential to keep as much of that money as possible.

Tax burdens, though, can make optimizing your company’s profits difficult. Many business owners wince when they think of filing their business income statements because they know they’re losing a significant portion of their profits to taxes.

Fortunately, there are several strategies you can start using today — and keep using all year long — to minimize your tax obligations this year. Here are a few.

Net Operating Loss

In some cases, a business may have an expense deduction higher than the company’s income. This scenario, known as a net operating loss (NOL), can create tax benefits in the future, as long as you properly document and claim the deduction.

Companies that are in startup or growth phases, as well as those impacted by the COVID-19 pandemic, are commonly eligible for the NOL deduction. Also, if your business derives income from multiple sources, you can use this provision to offset income gained from those sources.

Defer December income by Billing Clients on December 31st

If you are a service provider or other business owner who routinely bills clients, a simple billing change could help you avoid significant tax obligations.

For example, suppose you are a graphic designer who invoices clients weekly. In December, you could opt to bill your clients for December on the 31st. That means they will not pay until January 1st, which falls in the following taxable year.

Pay Expenses in Advance

The IRS allows you to prepay up to 12 months of expenses without question or scrutiny. For example, suppose you lease equipment for $3,000 per month. You could submit a $36,000 payment on December 31st and claim the entire amount as a deduction.

This also represents a win for the lessor, who will record the payment as income in January — avoiding taxation on this income until the following year.

Make Important Purchases on December 31st

If you’ve been looking at new computers, equipment, training, or anything else to support and grow your business, complete these purchases by the end of the year. Doing so will give you the benefit of deducting the cost of these items during the current year.

Want to know more about how to minimize your business taxes? Get in touch with one of our experienced professionals at Quantum Strategies Wealth Advisory. We are here to serve you.

Advisory services are offered through Quantum Strategies, LLC dba Quantum Strategies, a Registered Investment Advisor in the State of Pennsylvania. Insurance products and services are offered through William Rizzo, Sole Proprietor.