More and more people choose to be self-employed these days. Millennials have also taken advantage of freelancing and side hustles in the last few years. They aim to improve their earning potential and move forward with their financial goals.
It doesn’t take much time to get started on Rover, Doordash, or Uber, but you also need to understand how you should file your taxes as a freelancer. This process may be more time-consuming but if you keep in mind these mistakes and avoid them, you won’t get any surprises with owing taxes.
Self-Employment and Taxes
Filing taxes for the self-employed seems a more complicated task. It’s less transparent than when a person has a regular 9-to-5 job. Hence, some freelancers are shocked when they find out they owe taxes the first year they reported income outside their regular office jobs on their returns.
Did they miss something? How can it happen? Filing taxes is surely not a pleasant obligation. Small business owners and freelancers don’t like tax time for a good reason. They typically do more paperwork, need to keep better records, and often worry about their potential IRS audit.
Of course, freelancers receive more deductions for their business-related costs but knowing how to avoid errors while tax filing taxes is an important skill that may cost you a lot. Not just photographers or coffee shop owners are considered self-employed. Small business owners are all who belong to the gig economy. Every sole proprietor and freelancer should report a business profit on their personal tax return.
Thus, you are the one responsible for defining and paying your own taxes unlike employees at regular jobs. You shouldn’t panic if you have filed your taxes and now see a large amount that you owe. It may feel overwhelming and frustrating, but here are the mistakes you should avoid.
Errors to Avoid When Filing Your Taxes as a Freelancer
1. Forgetting About The Deductions
Did you know that you can deduct any business-related expenses? It doesn’t mean any personal costs but only expenses you’ve had for your enterprise. When you take out online loans no credit check instant approval Canada 24/7, you already know that a hard credit inquiry can be harmful to your credit, so you seek alternative options.
The same is here, you should seek ways to deduct any reasonable cost to minimize your taxes. Such expenses may include advertising, eating out, mileage, or office supplies. More than that, freelancers may also deduct costs for property taxes, rent, travel, and even mortgage interest. Not many consumers know about that.
2. Not Reporting All Your Profit
This is a widespread mistake when consumers are tempted not to report their extra profit. However, you should keep in mind that this is fraud and you should always report all your income including any additional profit you obtain.
You may wonder how the CRA will ever find it out. In reality, it’s not that difficult to get the necessary information from the companies and services that paid you. No matter how much you’ve earned, even if it’s $50 or $100, make sure to report all streams of your income to avoid errors.
3. Not Cooperating with an Accountant
You can’t know all the pitfalls and nuances of filing taxes and getting the most advantage of your deductions. Why don’t you turn to a professional accountant for assistance? Those who have just started freelancing feel they don’t need to pay another person for this work.
But as your business starts to grow or your income increases, it makes sense to find a reputable accountant who will help you with tax deductions and offer smart tips on how to avoid mistakes. The assistance of a specialist can actually save you money in the long run, so look for professionals who are familiar with filing taxes for freelancers. Many accountants offer reasonable prices for their services while they will answer your questions and concerns.
4. Not Logging Your Data
Did you forget to log all your information? Even if you’ve made deductions and reported all your profit, failing to log the data may be a serious mistake. Logging your information can be done on a spreadsheet or using special apps. It will be easier to track your expenses when you have everything written down.
5. Not Earning Income
It may be surprising but not every business owner actually makes enough profit. In reality, people may run a business out of passion or experience temporary financial disruptions. Don’t worry if you have occasional issues with your business funds.
The CRA expects freelancers and sole proprietors to turn a profit once every seven years or more frequently. You may stop reporting your losses in case you are too worried about an audit. A great solution will be again to discuss this matter with an accountant.
6. Failing to Pay Taxes on Time
This is a common rule to pay all your financial obligations on time. Whether it’s utility bills or taxes, paying on time will help you prevent issues and penalties. If you don’t have enough cash, you may even take out a small loan or use your savings for this purpose. Refusing to pay the taxes on time may lead to negative consequences.
For instance, the CRA may garnish your income and even seize your valuable assets to cover the tax bill. If you choose to be honest and negotiate this issue with the CRA, they may allow you to extend the payment plan.
In conclusion, you should try your best to report all your income, pay the taxes on time, and log your information to avoid common errors. Turning to a qualified accountant will help you maximize the deductions and avoid an IRS audit. It may take some time and effort to understand your taxes and everything that is connected with them. If you follow these tips you won’t have anything to worry about in terms of filing taxes as a freelancer and will move forward with your financial goals.
Alice is a professional writer and editor at Research Snipers, she has a keen interest in technology and gadgets, She works as a junior news editor at Research Snipers.