The following post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga.
A 2016 estimate from the Bureau of Labor Statistics puts the number of self-employed people in America at approximately 9.6 million. And thanks to the gig economy and the prominence of companies like Uber Technologies Inc UBER, Lyft Inc LYFT, and Doordash, a growing number of people are joining those ranks.
In fact, the BLS projects that by 2026, 10.3 million people will be self-employed. That suggests a 7.9% annual growth rate, outpacing the 7.4% growth rate for all other workers.
Self-employed workers get the benefits of being their own boss, dictating their own hours, and not having to deal with long commutes. They also get to enjoy several tax deductions specifically meant to help ease the burden of being self-employed.
But while self-employed workers in the U.S. get the benefit of these deductions, the burden is on them to figure out their tax obligations and what deductions they’re eligible for.
This adds another layer of complexity to the already labyrinthine task of managing your business-of-one, especially for people not using a professional tax-filing service. With tax season around the corner, here are three strategies self-employed workers should employ before the end of the year to help themselves when tax time comes.
1) Organize Your Income, Expenditures, and Records
While this really applies to anyone, it’s especially important for self-employed and freelance workers to have their records organized ahead of time. This means making sure all your income is accounted for via 1099-K or 1099-Misc forms and you have receipts for all your business-related expenses. You should also use this time to estimate your income and expenses for the future.
The easiest way to keep income and expenses organized throughout the year is to keep them all linked to specific bank or credit accounts and to file your taxes quarterly. Keeping your accounts segmented will ensure you know exactly where to look for each type of business expense or credit while filing quarterly will better reflect your actual tax liabilities and help you avoid a penalty or other surprise from the IRS.
Finally, don’t be afraid to use tax calculators or preparation tools like AARP Foundation’s Self-Saver™ to estimate where you stand taxwise this year.
2) Look for Deductions and Tax Breaks
There are a lot of deductions you can be eligible for if you’re self-employed. But you have to look for them.
You can claim deductions for meals, travel, entertainment, health insurance, FICA taxes, interest on business debt, even having a home office.
The IRS may question why you claimed certain deductions — for example, if you claim a trip to a sports game as a business expense — so it’s always a good idea to keep a spreadsheet of your deductions, their cost, and why you paid for it in the first place. If you can defend your reasoning — by showing that the sports game was to entertain a client, for example — the IRS is more likely to allow it.
You can also get tax breaks for contributing to retirement accounts, such as a SEP-IRA, SIMPLE IRA, or Solo 401(k).
3) Keep a Calendar of Important Dates
It’s really important to be aware of the contribution deadlines for retirement accounts. You have until Dec. 31 to max out your contributions to your retirement accounts for 2019.
Dec. 31 is also the deadline to spend your Flexible Spending Account money if you have over $500 in your account and make charitable contributions. All of these expenditures come with tax breaks, so it’s important to make them before the end of the year.
Once the calendar turns, there are a slew of other deadlines you’ll need to have on your radar:
- Jan. 15 is the deadline to pay estimated taxes for the fourth quarter of 2019.
- March 15 is the deadline to file partnership and S corporation returns, which you can file using a Form 1065 or Form 1120-S.
- April 1 is the deadline for people who turned 70½ in 2019 to take their first required minimum distribution (RMD) from an IRA or employer-sponsored retirement plan.
- April 15 is, of course, the deadline to file your individual tax returns or file for an extension using a Form 4868. It’s also when you make your first quarterly estimated tax payment for the next year.
The preceding post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga. Although the piece is not and should not be construed as editorial content, the sponsored content team works to ensure that any and all information contained within is true and accurate to the best of their knowledge and research. This content is for informational purposes only and not intended to be investing advice.
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