Spending time and energy to unearth every legitimate tax-deductible business expense is usually a last-minute dash for many independent, self-employed professionals; as they rush to prepare for tax time.
But tax filing doesn’t have to be an unanticipated anvil that drops on your head.
You can plan for it!
Independent self-employed professionals: Contractors, Freelancers, Sole Proprietors
You are considered an Independent Professional and not a typical Employee if you preform services that is not controlled by an employer. i.e. you control project hours/ delivery time, you are responsible for tax filing/ withholding and you do not receive company benefits etc.
Tax Planning Strategy
The key to a successful tax plan is to understand your tax situation and to know the tax savings available to you; then to incorporate an accounting system that is structured to take advantage of those tax savings and most importantly to plan ahead.
Know how you are taxed
Tax planning starts with knowing what's required of you. As an independent self-employed professional the responsibility of your tax situation falls on you. Unlike an employee, you are your own boss and no one is withholding Income tax, Social Security or Medicare and submitting it to IRS on your behalf. Or much less paying employer’s contribution toward Social Security and Medicare on your behalf. As an independent professional the burden is yours. But the good news is there are many tax-advantages available to you.
Use an accounting system to record/ track your income and expenses
Revenue is the most commonly known financial number among independent professionals. The mindset is “as long as I’m making money, I really don’t care if my books are in perfect order.” But that mindset is a recipe for tax time headache.
Implementing an accounting system that you actually use throughout the year will take the worry and work out of tax season. Tracking business expenses as they occur will increase your opportunity to turn legitimate qualifying expenses into tax reducing deductions.
Proactively outlining a tax plan/ strategy to optimize your tax savings
Tax planning strategy for Independent Professionals, Contractors, Freelancers, Self-employed:
Starts with income and expense tracking
Calculating estimated taxes
Consider tax strategies available to your specific classification
o Investing in retirement plan
o Optimizing your depreciation method
o Taking advantage of health insurance deduction
o Making monthly estimated tax payments rather than quarterly
o Proactively withholding a percentage from each sales payment, you receive, in a separate account to go towards your estimated tax payment