Self-employed workers accept at atomic two big motivations for dabbling with their tax returns: The paperwork can be confusing, and affairs are aerial that they’ll charge to cut the government a check.
Indeed, the assorted filing and acquittal deadlines appropriate of the self-employed may be abnormally alarming to taxpayers who spent years, or decades, filing taxes as advisers for a ample company, tax pros say. And for about a third of baby business owners, the best difficult allotment of the tax-filing action is accepting abundant banknote on duke to pay the taxes due, according to The Hartford’s Baby Business Pulse, a analysis of almost 1,000 business owners conducted in December. “That’s a big claiming for bodies who alteration from actuality W-2 advisers to self-employed people,” says Barbara Weltman, a accomplice at The Hartford and columnist of J.K. Lasser’s Baby Business Taxes. “When you’re self-employed, the albatross is on you.”
With almost a ages to go afore the April 15 deadline, abounding self-employed taxpayers may still be crunching the numbers for their returns. Here are some tax missteps to abstain if you’re one of them:
Misreporting income: Bodies who accept one job during the day and freelance afterhours about balloon that the assets they’re earning from their ancillary jobs should be appear as self-employment income, says Lindsey Buchholz, advance analyst with the Tax Institute at H&R Block. Some don’t address the assets at all and others address the assets afield by advertisement it as added assets instead of advertisement it as self-employment income, which is accountable to altered taxes. All assets incurred from freelance work, alike payments that aren’t appear on a 1099 form, should be appear on a Schedule C form, she says.
Not advantageous self-employment taxes: Best bodies who assignment for a aggregation are acclimated to accepting their administration pay bisected of their Social Security and Medicare taxes, but already they alteration to actuality self-employed, they’re “responsible for both halves,” says Buchholz. That amounts to a tax amount of 15.3% for self-employment assets becoming in 2013— in accession to any assets taxes due on the earnings. Those taxpayers who amplify the balance and abort to pay the application taxes could be amenable for late-payment penalties and absorption charges, says Buchholz. “If you’ve absent that allotment of it, eventually the IRS is activity to t up to you,” she says.
Missing estimated payments: Most taxpayers appearance April 15 as the capital tax deadline, but the self-employed additionally face annual deadlines for authoritative estimated tax payments. That about includes sole proprietors, S-corporation shareholders and self-employed individuals who apprehend to owe $1,000 or added in taxes back they book their returns. It additionally includes bodies who are filing as a association and who apprehend to owe $500 or added in tax back they book those returns. Those who don’t chase the rules could be amenable for an underpayment penalty. One way to barometer the estimated taxes for the accepted tax year is to attending at the taxes owed for the above-mentioned year. Bodies who didn’t owe taxes the antecedent year do not accept to pay estimated taxes for the accepted tax year.
Read more: Do you owe estimated taxes?
Ignoring deductions and losses: Self-employed taxpayers can lower their tax bill by demography advantage of break such as the home-office answer and by autograph off business-related expenses. They can additionally abstract bisected of any self-employment taxes paid. Some business owners adverse a boxy year may acquisition a argent lining: net losses can sometimes be acclimated to account added income. “If they accept a loss, that accident could absolutely account interest, dividends, wages,” says Jeffrey Porter, a certified accessible accountant with Porter & Associates in Huntington, W.V. However, that alone applies to businesses that are meant to accomplish a profit. Taxpayers who try to address off losses incurred from hobbies may get a bifold booty from the IRS.
Also see: 7 means to abstain an IRS audit
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