If you have just gone out on your won this year and started your own business or become a personal contractor, then congratulations! Taking that step is a big risk, but it can also be very rewarding. One of the things that makes a lot of people hesitate when it comes to going out on their own is taxes. Why? Because sometimes people don't plan ahead, and then when it comes time to pay taxes, they owe a lot more money than they were initially aware of. So, if you are self-employed, how can you plan ahead of time for taxes? This article will take a closer look at a few things that you can do. Read on.
Talk to a CPA
A certified public accountant, or CPA, should be your number-one resource before, during, and after filing taxes. Before you even go out on your own, you should have met with a CPA to see how you should take care of finances, but if you have not yet met with one, then do it right away. Your CPA will tell you all sorts of ways that you can get ahead now for tax season. For instance, you can:
1. Start setting money aside for taxes
2. File quarterly
3. Set up an LLC
4. Open up separate business bank accounts
Maximize Your Write-Offs
As your own employer, you should maximize as many write-offs as possible. When you meet with your tax planning professional, they will discuss all of the write-offs that you might qualify for. Write-offs can include anything from the square footage of your home office to your car payment if you use your car solely for work. All of these can be considered business expenses which you can write off at the end of the year.
So, how does a write-off work? For example, if you bring in 40k in one year. Well, you have to pay taxes on all of that, and the more that you make, the more taxes you owe. If you have write-offs that equal 10k, you get to deduct that amount from the 40k, which means that you are really only paying taxes on 30k. That's why it is so important to keep track of all of your expenses.
As you can see, being prepared for tax season takes some tax planning, but it will be worth it in the long run.