If you are newly self-employed, you will want to take steps throughout the year to prepare for the filing of your income taxes. Since federal and state income taxes are not withheld year-round by your employer, it is up to you to figure out what percentage of your income will need to be socked away if you need to make a payment when taxes are due. For 2015, self-employment tax is 15.3% of your pay. This number should be used as a starting point in figuring out how much to save in future years. Here are a few tips you can use to make sure you are not caught off-guard when tax time comes around.
Keep Detailed Records
From the beginning of your self-employment endeavors, you should keep accurate records of your incoming payments and outgoing expenses. Purchase a reliable accounting program to set up on your computer. Make sure to input information pertaining to each job you complete to show where your money is coming from and what expenses you need to pay to do your job. These programs allow you to filter information by job, date, or amount, making it easy to print out reports when needed.
Besides your income and expenses, if you have a home office where you do your work, you will want to use it as a deduction at the end of the year. Often, people using an office may be audited. It is to your benefit to have photographs of your office, a layout of the office plan including measurements, and copies of any utility bills you pay throughout the year. This information can be given to a tax consultant to help determine how much you can deduct. It will also be in safekeeping should you need to prove you do indeed have a physical office if you are audited.
Hire A Reliable Accountant
Having an accountant to make heads and tails of your paperwork can save you a bundle of time when it comes time to file your taxes. Giving them the information you input into your program can be very beneficial. They will be able to help you with strategic tax planning by letting you know what your tax outlook appears to be for the following tax season.
Since your workload may fluctuate during the year, this amount will regularly shift up or down. However, the more months you have pass, the more accurate the estimate will be. This estimate will allow you to save money from your earnings to use to pay the taxes when they are due. Your accountant will be able to tweak the estimate according to your income and give you a running balance at any given time to help you make your preparations. Contact a local accountant, like Karla Dennis and Associates, for more information.