The world is changing and as such, there has been a rise of international connectivity and high-quality consumer tech giving rise to a gig economy. As a result, many people have taken their jobs in their hands and are now working for themselves.
It is encouraging to see people take their entrepreneurial skills to an advanced level but it is frustrating that many of them are doing so without a clear idea of their tax obligations. If you are a beginner, it is essential that you avoid these common tax pitfalls.
Failing to Recognize Yourself as a Freelancer
Many people make money freelancing as a side gig alongside their day job and assume that because they are paying tax at work, they do not have to pay tax on their freelance wages. The truth of the matter is that these people have the same tax obligations as the full-time freelancer, and are, therefore, required to pay the income tax as well as the self-employment tax.
Not Getting the Help You Need
Time is money, especially when you freelance. Whether you do freelance as your living or a lucrative sideline, it is crucial that you reach out to people who can assist you with your taxes to avoid overspending. Hiring a tax controversy attorney could be the most prudent investment you could make especially if you find yourself audited. Hiring professionals to handle your bookkeeping and accounting matters saves you time and money.
Filure to Track Your Expenses
Obviously nobody wants to start another financial year with disappointment by tracking to track their financial records without any success. It is important thus that you log your revenue and spending weekly or monthly.
You also have to ensure that you accurately log your income-related expenses. Believe it or not, almost 73% of all freelancers fail to declare their income-deductible expenses leaving the IRS to take a sizeable bite out of their income disproportionately.
Having This is mind, it is vital that you know exactly what counts as a tax-deductible expense. If your daily business operations require the use of your vehicle, you need to beware that the mileage, maintenance and repairs, and taxes all qualify as deductibles. When working from home, then a part of your rent or mortgage interest, property taxes, and utilities can be deducted, and the same applies to expenses on computers and office supplies. Any money that is used in advertising and marketing, professional training and licensing to professional bodies are also deductible.