Doing your taxes as a self-employed individual is a little different than doing your taxes as an employee. Here are three mistakes that you need to make sure that you avoid on your taxes; all three of these mistakes could end up costing you a lot of money.
Mistake #1: Not Reporting Income Correctly
One of the biggest mistakes that you can make when doing your taxes is not reporting your income correctly. If you under-report and hide your income, you could face big consequences. To start with, under-reporting your income could actually be considered tax fraud and comes with serious consequences such as prison, fines, and penalties on the taxes that you actually owe. To make sure that you don't under report on your taxes, make sure that you get tax statements from everyone that you made money from this year. Don't just depend on businesses that you did work for to provide you with tax statements, but go through your own records and record the income that you made month-to-month. You want to make sure that you report accurately the income that you earned.
Mistake #2: Not Taking The Right Deductions
Second, you want to make sure that you take the right deductions on your taxes. One of the biggest deductions that many people miss is the home-office deduction. You can deduct the percentage of your home expenses based on the size of your home office from your taxes. For example, if the square footage of your home office takes up 10% of your home, you can deduct up to 10% of all your home costs, including water, electricity, internet, mortgage, and insurance. This can be a large deduction and can help lower your overall tax burden.
Also, make sure that you keep track of all of your business expenses throughout the year. All of your business expenses are part of the overhead of doing business and are deducted from your "profits," which is your income. This can help further lower your tax income.
Mistake #3: Not Paying Into Retirement Funds
Even as a self-employed individual, you can still pay into tax-deferred retirement funds. The amount that you can put in tax-differed retirement funds depends upon your overall income level. The great thing about tax-deferred retirement funds is that you can generally make these contributions up until the final tax filing day this year for last year. Start putting money into a retirement fund, because it will help lower your overall income and save you money on taxes, and it will help secure your future.
For more information, contact local professionals like Hoff John CPA PC.