We are living in a world that is constantly changing, and there is a rise in the international connectivity and high-quality consumer technology that has resulted in a rise in a gig economy. This has seen many people brought their careers into their hands and started working for themselves in a variety of fields.
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 starting out, it is essential that you be on the lookout and 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 is that such people have the same obligation as a full-time freelancer and must pay both the self-employment and income taxes.
Not Reaching Out for the Help You Require
Time is money mostly when you are a freelancer. Whether freelancing is your living, or you do it as a side gig, it is important to reach out to people who can offer assistance with your taxes and 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 therefore essential to record your income and expenditure on a weekly or monthly basis.
You also have to ensure that you accurately log your income-related expenses. Most freelancers, up to 73% fail to declare their tax-deductible costs meaning that the IRS takes disproportionately a significant amount out of their income.
Having This is mind, it is vital that you know exactly what counts as a tax-deductible expense. If for instance, you use your car for everyday operation of your business, you need to be aware that the vehicle mileage, tax, repairs and maintenance, all qualify to be deductibles. If on the other hand, you work from home, a portion of your rent or mortgage interests, property tax, and utilities can be deducted as can any expenses on computers and office supplies as well as the phone and internet use. Any money that is used in advertising and marketing, professional training and licensing to professional bodies are also deductible.