Unfortunately, taxation isn’t as simple as handing over a percentage of what you earn to the Inland Revenue Service (IRS). The system is full of rules and pitfalls, which makes it easy to make a mistake or miss a deadline when filing your own tax return. The IRS don’t look kindly upon late or incorrect returns and will voice this displeasure by fining you for the misdemeanor.
No one wants to pay more money than they already must, so here are some tips to avoid incurring a penalty:
1. Get advice in the first year.
If you’re just starting up in business, speak to other self-employed people about how they manage their tax affairs. This will give you an idea of how much you might have to pay and what you can deduct. You could also hire an account to help you with this.
2. Set reminders and submit your tax return before the deadlines.
Get clued up on all the different taxes you have to pay and the deadlines by which you have to pay them. If you’re self-employed, check, too, that you’ve registered in enough time to submit your return for the period you’ve been in operation.
3. Check out premade tax kits to make the process easier.
As mentioned, taxation is full of pitfalls, and some of the forms you have to fill in and the processes you must go through will feel pretty complicated. You can ease some of the stress and confusion filling in your tax return can create by using pre-printed tax forms that allow you to get down to work and supply the necessary details.
4. Open a separate account for business income and expenses.
You can make life so much easier for yourself by setting up a separate account for your business expenses. When tax time rolls around, you can refer quickly to your account instead of having to rummage through a mountain of paper receipts. It’s also much more straightforward to check if the IRS ask you any questions about your expenses, rather than having to recall whether the expenditure was a business expense or personal one.
5. Keep a running tally of your income.
This is a simple measure. Keeping track of your income will enable you to calculate roughly how much your tax bill could be and how much you need to set aside for it. Are you setting aside enough?
6. Get ready to pay your taxes.
Another straightforward measure to help you falling foul of the IRS is to allocate a percentage of your income each month to cover your tax bill. Remember that, technically, this money isn’t yours, so place it in a savings account and forget about it until it’s time to fill in that tax return.
7. Always overestimate slightly to be on the safe side.
It’s better to overestimate and set aside more than you think you’ll have to pay than to be on the receiving end of a penalty for declaring too little and underpaying. If you’re not sure how much you’ll have to pay, overestimate. You’ll get the money back as a tax refund.
8. Hire an accountant.
The job of an accountant is to ensure you’re paying the right amount of tax. They’ll be able to help you fill out your tax return. They can also take care of any book-keeping you require if you provide them with the receipts from your expenses. Hiring an accountant will give you the peace of mind that you’re submitting a correct tax return.
The tax system is full of rules that can make filing a correct tax return more complicated than you’d like it to be and the prospect of a fine possible. However, steps such as hiring an account and allocating a percentage of your income for tax purposes can stop you from receiving an unwanted letter from the Inland Revenue Service through your door.