Deciding To Live On A Budget

Being self-employed has numerous advantages over working for an employer. You can choose your own hours, take breaks any time you want, control your own income and rates, and feel a true sense of independence. However, when it comes to taxes and tax season, being self-employed can be a challenge if you are not prepared for how different it is from working for an employer. Get to know some of the ways that you can get yourself into tax planning mode early when you are self-employed. The more you know about tax planning as a self-employed person, the better off you will be.

Never Wait Until April to Think About Your Taxes

Perhaps the biggest mistake you can make when it comes to taxes when you are self-employed is to wait until April when final tax returns are due to think about your taxes at all. When you do this, you will find yourself in a painful and frustrating situation.

Being self-employed means that all of the money you receive from clients will come to you as a straight fee or dollar amount. No taxes will be taken out of that money automatically by the government the way that your paycheck from an employer would be.

This leaves the responsibility of taking taxes out to you. As such, if you wait until April before you even think about taxes at all, you will be looking at a large lump sum of money you will need to come up with to pay the government.

Additionally, the IRS prefers that self-employed people submit tax payments quarterly for the tax year in question rather than all at once at the end of the year. This means that you will pay a penalty if you wait until the end of the year.

Remember You Are Responsible For The Portion Of Taxes An Employer Would Pay

When you worked for an employer in the past, the amount of money that you saw come out of your paycheck was only part of the story. This was the portion that the employee is responsible for. Your employer was also paying taxes on your wages.

Being self-employed means you will not have that help paying your taxes. You will need to take care of that portion yourself. In order to ensure you are taking enough out for taxes each time you receive a payment from clients, you will want to take between 25 and 30 percent and set it aside.

To best put this money you are setting aside to use, open a special savings account with the highest possible rate of interest return to place the money in. This separate account will keep you from accidentally spending the money and the interest will make that tax money work for you as long as you hold onto it.

Now that you know a few of the ways that you can better engage in tax planning when you are self-employed, you can get started as soon as possible and save yourself a major headache when April rolls around this year. To find out more, contact someone like Balkcom Pearsall & Parrish CPA's PA.