I used to enjoy doing our taxes. I know, I’m a dork, but I genuinely liked sitting down at the end of the year to see how everything shook out for the previous 12 months. We didn’t have anything too extravagant going on so it was fairly straightforward.
That all changed once my wife and I stopped working for our employers and went to work for ourselves. Taxes became even more complex when we saw our business take off. I know there is some debate as to whether or not you should pay someone to do your taxes, but for us it made sense to go that route. That, however, does not let us off the hook in terms of tax preparation. With that in mind, I thought I’d share some of my tax tips to help out if you’re self-employed.
Keep Things Separate
The first thing I learned in terms of taxes and running a business was to have separate bank accounts. I know it can be a hassle, but it streamlines your finances and makes keeping track of both personal and business expenses easier.
This same idea also applies to credit cards. If you are self employed and plan to do much in terms of business spending then you’ll likely want to have a separate business card. Be careful though as many business credit cards charge an annual fee. While they can be deductible you want to avoid paying too much in fees. As you will likely be filing separate business taxes this will make the process simpler to manage.
Automate Where You Can
If keeping things separate was the first tax tip I learned after starting my own business, then automation is a close second. Running your own business can take a ton of time (major understatement I know) and you want to cut down on the time consuming tasks on your plate.
I personally do this through Freshbooks as it allows us to manage our invoicing and expenses, though there are many other options available. If automation is not your thing then you can always set up a simple spreadsheet to keep track of your tax related issues. Just don’t do what I did…the first year of our business I avoided doing any of this and paid dearly in terms of time when it came time to prepare our taxes.
If you’re looking for free simple tax filing or low-cost tax filing options, check out TaxSlayer!
Retirement is Your Friend
Retirement may seem like an outside the box tax tip for self-employed individuals, but it very much fits here. If you run your own business you likely aren’t receiving any kind of 401k match so retirement falls on you as the individual.
The great thing is that the IRS encourages you to save for retirement if you’re self-employed. There are a number of options available, with SEP IRAs, Solo 401ks and SIMPLE IRAs being the most common. In most cases (keep in mind to speak with your tax professional) all of these allow you to contribute significant amounts towards retirement. If that isn’t benefit enough, another big carrot is that the contributions have a direct impact on your taxable responsibility…which is a double bonus in my book!
Are you self-employed? What are some of your tax tips to make tax filing simpler? Do you prepare your own taxes or pay someone else to do them?
This post was originally published on August 7, 2014 and updated on April 21, 2020.