Updated: January 25, 2017
Now that the holidays are behind us it’s time to get ready for tax season. A show of hands…who still has all their receipts in a shoebox? Me too! Well my friend the time has come for us go face to face with those receipts and start itemizing our deductions for our self-employment taxes.
I know preparing the paper work can be overwhelming but think of it this way, it’s one of the perks you get for being your own boss. And it there is great news for those who run a business from home. Take a look at some of the deductions we’re been able to claim since January 2013.
Anyone who has a home-based business is able to deduct the part of the home that is used for business. You can also deduct certain expenses for that business like electricity and internet. This is available for homeowners, renters and applies to all types of homes. You can find more informatoin about it in this article that explains the two methods that are available in order to do this.
Who Is Considered Self Employed?
In case you’re wondering who is considered self-employed, here’s what I learned from the IRS website.
Irs.gov describes a self-employed individual as anyone who carries on a trade or business, as a sole proprietor or independent contractor. And anyone who is a member of a partnership that carries on a trade or business or someone who otherwise is in business for themselves, this includes a part-time business.
Preparing Your Self-Employment Taxes
Like I mentioned earlier, getting all your documents and receipts in order can be overwhelming and even down right frustrating, unless you love playing with numbers like I do. For me, it’s good to see where our money goes all year and where I need to cut back and save money, like eating out. Anyway.
When I was a Staff Administrative Manager at AT&T, I was in charge of the district’s budget and expenses. Every year the District Area Manager would audit our books to see what our expenses were and where else the budget went to so I became an expert at record keeping.
Now I apply that to my own record keeping and so to help you out, I’ve made a list of four important things to remember when you get ready to put receipts together for filing your self-employment taxes to get the best return possible and avoid a tax audit!
#1 First, find out if you are subject to self-employment tax and income tax. The irs.gov website shows you how you can figure this out.
Or you can use Jackson Hewitt’s Self-Employment Tax Calculator. Remember you have to file an income tax return if you earned $400 or more from self-employment. If you earned less than that amount you still have to file but using a different form.
#2 Be organized. Put your receipts in order by categorizing them. For example, keep a category for business related receipts and one for your home expenses. This makes it easier on the tax preparer to make sure they have accurate numbers and that deductions go in the right place.
When you submit your tax documents to a tax preparer, include copies of supporting documents, like a spreadsheet explaining your revenue and expenses and remember to keep a copy for your own records. Remember to hold on to your documents for at least seven years.
If you need a revenue and expense spreadsheet, feel free to use the one I created for myself. You can download the template for free here.
#3 Be thorough. When itemizing your receipts, follow the who, what, when, where and why rule of thumb when itemizing your expenses. If you do it by hand, tape your receipt to a piece of paper and write the details down.
Or you can put everything online. I was doing it manually for years and spent countless hours putting them together until I got the The Neat Scanner. I love how it automatically pulls all the receipt information like the date of purchase, name of merchant, taxable amount and total. It’s a major time saver. When you’re done, you can import it to Excel and print it out. It is a little on the expensive side but the pays itself off for all the work it does.
Extra Tip: Put receipts together every month or every quarter to keep receipts from piling up on you at the end of the year.I'm like tax. You're going to pay one way or another. ~Shaquille O'neal #quoteClick To Tweet
#4 One last thing, if you’re not sure about the laws and what deductions you can take, you should leave it to an experienced tax preparer who is familiar with the tax laws regarding self-employment and home-office deductions.
If you do decide to have a professional prepare your taxes, make sure you know something about them. To start, check out the National Association of Tax Professionals (NATP) to see if your tax professional is a member and what it says about their experience.
But the best referral is by word-of-mouth. Ask friends and family members who does their taxes. For example, all the guys in our family are Longshoremen so we all use the same tax preparer because she’s familiar with Maritime taxes and deductions (we’ve been with her for about 20 years now). Since we know she does a great job anyone who is new to the waterfront, she’s the one we refer them to.
There You Have It
I hope you found these for important tips helpful. How do you keep record of your expenses for your business? Do you prepare your own taxes? Let’s get the conversation going in the comments section below.
Before you go, if you know someone who is self-employed please share this post with them.