Worried you aren’t taking advantage of all the tax benefits for self-employed individuals? Here are some tax pro tips for you! Home Office & Business-Related Deductions Home office deductions are some of the most talked-about and least understood pro tips for the self-employed. The quick description of the home office deduction is this: the cost of any workspace you use exclusively for your business – even if it’s a closet in your home or a bedroom-turned-craft-or-recording-studio – can be deducted as a home office expense. And this applies to more than just the desk or computer you use. Let’s say, for example, the space you are using occupies 12% of your home. That means you can deduct 12% of the following expenses: Business percentage of deductible mortgage interest Home depreciation Utilities Homeowners insurance Annual Repairs You can also deduct the following business expenses: phone, fax, and internet. Essentially, if you can show that an expense was incurred while you were doing business (charge for a long-distance phone call, the monthly or yearly costs of owning and operating your website), it is, more often than not, deductible. Bonus: did you know you can also deduct the cost of specialized magazines, journals, and books that are directly related to your business? Here’s some more information on that. Retirement Planning Several retirement plan contributions are also tax-deductible. Contributions to SEP-IRAs, SIMPLE IRAs, and solo 401(k)s are included in this. For the 2020 and 2021 tax years, you can contribute up to $19,500 (or $26,000, with the catch-up contribution, if you're 50 or older) in deferred salary. Mileage & Business Trip Expenses When you use your car for business, your mileage for those trips is tax-deductible. For 2021, the standard mileage rate is 56 cents per mile. Using the standard mileage rate is easiest. However, after the first year of you using that vehicle for business, you can use the …
7 Strategies for Financial Organization & Bookkeeping
Whether you are an established business owner or just starting on your entrepreneurial path, bookkeeping is a necessary part of your professional journey. Here are some strategies to help you with financial organization and bookkeeping. Set Up Automatic Billing and Payments Where You Can The money that comes in and out of your business needs help getting to its destination, but that doesn’t mean you have to do everything yourself. Take advantage of – or even set up systems for – automatic billing and payments. The crux here is making sure you still monitor these systems on a less frequent, but still consistent, basis. So long as you know which expenses are coming out of which business accounts and you know you have enough funds to cover them, automatic transactions relieve some of your stress and give you peace of mind knowing your essentials are taken care of. Break Up the Work Procrastination is the spice of life. It’s easy to tell yourself “I’ll do a little bit every day” when you are planning out your next week or month, but the execution doesn’t always work out that way. Set up a time in your day (preferably) or week to go through your transactions, enter the necessary data, and gather or organize documents. We all know how it feels to put something off for just a little too long and then be staring down the barrel of a mountain made of paperwork. Keep Your Files Organized While having one perfect system for keeping all finances and other business-related records would be ideal, the reality is much more nuanced. Your business may have a storefront that accepts a variety of payments like cash, checks, credit, and debit. And perhaps your online store runs through Paypal or Square. That’s a lot to keep track of. It’s important to develop a strategy early in the year to ensure that your records – whether paper, pdf, or something in between – are organized and easily referenced. Issues will arise, and it’s better to have things in order before …
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FAQs for Filing Taxes
No matter who you are or what you do, you’re going to have tax questions. Let’s take some time to go through the most frequently asked questions for filing taxes. Are Unemployment Benefits Taxable? In 2020, the unemployment rate reached 14.8%, which is the highest rate observed since data collection began in 1948. And many people had to include unemployment benefits in their 2020 (and possibly their 2021) tax returns. Typically, unemployment income is taxable. If you collected unemployment payments, you will receive Form 1099-G which will show your total payments. It is also worth noting that under the 2021 American Rescue Plan, the first $10,200 (or $20,400 if married filing jointly) of unemployment income was tax-free on your 2020 taxes. No word yet if those provisions will carry forward to the tax year 2021 returns. What Is Self-Employment Tax? Self-Employment tax is a separate tax from your typical personal returns. It is a self-employed person’s version of the FICA tax, in which the independent contractor is responsible for paying for Social Security and Medicare. This is important to remember because those who are self-employed are responsible for both the employer and employee portion of the tax. Do I Need a FEIN for my Home Business? If you run a business out of your home as a sole proprietor, you don’t need a Federal Employer Tax ID Number. You can use your personal Social Security number. Any other business setup, however, will require you to set up a FEIN. What Are the Tax Ramifications of Withdrawing Money from a Retirement Account? Before the age of 59 1/2, withdrawing money early from a retirement account comes with a 10% tax penalty. The money may also bump you up into a higher tax bracket. I Started My Own Business. Can I Take Advantage of Home Office Deductions? Home office deductions are a little tricky. If you started a business and are looking into home office deductions, you’ll want to make sure everything you purchased …
Why You Should Hire a Tax Pro
On the fence about hiring a tax professional, buying tax prep software, or just filing taxes yourself? Let’s compare them! Pros and Cons of Tax Prep Software Tax preparation software is a great way to do your own taxes in a way that offers subtle guidance. So let’s talk about the pros and cons. The pros: tax software is affordable, speedy, and (if you got a good one) easy to use. Purchasing software will always cost less than hiring a real-life CPA or another tax pro. And this price is tailored to your tax needs. If you have an easy return, without lots of property dependents, and business accounts to reconcile, you will pay much less than someone who does have assets in all of these areas that need to be accounted for. As for speed, once you’ve collected all the necessary information, doing your taxes using tax prep software should very rarely take you more than an hour. And most software is straightforward, instructional, and user-friendly. Many of the cons of tax prep software will be pros for hiring a tax professional and vice versa. Using tax prep software means that you are going it “alone” in a sense – while the software may have helpful tools and insights if you get stuck, it doesn’t have the human touch and knowledge that a trained tax preparer will. Tax prep software also isn’t as well-equipped to handle more complex questions. And with all the COVID aid and new tax rules present in tax years 2020 and 2021, it’s much more likely that you’ll need some extra help navigating those changes. Pros and Cons of Hiring a Tax Pro Hiring a tax pro comes with its own unique perks. One pro of paying someone else to do your taxes is that you don’t have to do them! But besides that, professional tax preparers often have much more advanced (and expensive) tax software they use to make sure your taxes, corrections, and TIN checking are done correctly and accurately. Arguably the biggest pro to hiring a tax preparer is the human touch element. When …
Interesting Tax Facts
Just as there are tons of weird and interesting laws in place all over the world, there are also tons of interesting tax facts! We’ve collected a list of facts from the US and the world. Use this fun knowledge to shock a friend or impress a colleague. Historical Tax Facts Lady Godiva took her famous 11th century ride because of high taxes. She pleaded with her husband Leofric, Earl of Mercia, to lessen the burden on his subjects. He made her a bargain: he’d lower the taxes if she rode through the town naked. And she did. Federal tax returns weren’t always due on April 15th. In 1913, it was March 1st, and in 1918 it moved to March 15. The April 15th due date was adopted in 1954. Employers have only been withholding income taxes from employees’ paychecks since the Current tax Payment Act of 1943. Albert Einstein once said, “The hardest thing in the world to understand is the income tax.” Madison Square Garden, the New York entertainment venue, has not had to pay property taxes since 1982. In 1696, a window tax was introduced in England and Wales. It was assessed as a flat property tax plus a tax based on the number of windows a home had. As a result, some people bricked up their windows. In the 1800s, single men in Missouri had to pay a “bachelor tax” of $1 annually – equivalent to $20 today. Tax Facts about Food Maine has a special tax on blueberries. It reads: “There is levied and imposed a tax at the rate of 1 1/2 cents per pound on all wild blueberries processed in the State and on all unprocessed wild blueberries shipped to a destination outside the State.” Maine produces about 99% of the United States’ wild blueberries. Illinois, Colorado, and Washington all have a candy tax, but their definition of candy is specifically described as having an absence of flour. This means gummy bears are taxed as candy, while Kit Kats and Whoppers are not. For more, check out this article about the candy tax from NPR. In New York City, bagels are …
Smart Ideas for Spending Your Tax Refund
As of May 6, the IRS reported they are holding 29 million tax returns, which means many Americans are still waiting for their refunds. So let’s talk about some smart ways to spend your refund when it comes. Invest in Your Side Hustle or New Business Many people created side hustles in 2020 or started thinking about starting that business they’ve been dreaming about. Why not make that refund money fuel for that dream? Investing your tax refund into a side business is a great way to diversify your income and start building up your new business! Focus on Your Debt Another great way to put your refund to work is to contribute a lump sum to one of your big loans or credit card bills. Paying down those debts with your refund can decrease the total amount of interest you’ll pay over the lifetime of that debt source. Put It in a Retirement Account Saving for retirement is always important, and after a year of income and job loss, it’s also a smart idea to take that refund and put it into a 401(k) or another retirement account. If you don’t have anything pressing that needs to be paid (big debts or upcoming expenses), putting that extra money into your future is always a solid plan. Put It toward Your House Saving for a home? Use that refund to increase your down payment amount. Looking to sell your home in the next few years? Take your refund and choose a home renovation project that you can put that money toward. Make Forward-Looking Investments There are tons of great options for investing in your future. This can include real estate, a tech startup, or stocks. It can also mean putting that money to use by spending it on products and services that either make your life easier or save you money in the long run. Update old appliances in your house – maybe you need a new refrigerator or air conditioning unit that is more energy-efficient. Research meal delivery kits that save you time and money on groceries, or purchase those big-ticket items that …
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