Being self-employed offers many advantages over being a W2 employee but it can get tricky when it comes to taxes. We’ve put together 6 tax tips for the self-employed that can benefit every freelancer, small business owner and self-employed worker out there.
Tax tip: Record all your expenses
One of the best pieces of advice we can offer is to stay on top of your expenses. Not only will this help the self-employed during tax time, but it will also help you stay on top of your business. Knowing exactly how much you’re spending will give you a better understanding of the financial health of your business.
When it comes to taxes, recording all your expenses can lead to a major write-off. Remember, you can deduct virtually any businesses expense as long as it’s ordinary and necessary, directly related to your business and for a reasonable amount. The IRS requires you have adequate proof of these expenses, though.
Know your tax due dates
If you’re going to pay your taxes, you should know when they’re due. Even if you pay a tax pro to handle this, it’s still important to know the tax due dates.
As a freelancer/small business owner/self-employed worker, you’ll likely have to pay estimated quarterly taxes as part of the Self-Employment tax.
|Date||What's Due||Payment Period|
|April 15||Pay first installment of estimated tax||Jan. 1 - March 31|
|June 15||Pay second installment of estimated tax||April 1 - May 31|
|Sept. 15||Pay third installment of estimated tax||June 1 - Aug. 31|
|Jan. 15||Pay final installment of your previous year estimated taxes||Sept. 1 - Dec. 31|
Of course, you’ll also have to file your annual tax return.
|Jan. 29, 2018||First day IRS accepts electronic tax returns||First official day of tax season. Taxpayers can submit before this date.|
|April 17, 2018||Final deadline for submitting 2017 tax returns||Federal income tax returns due|
|April 17, 2018||2017 Federal Tax Extension Deadline||Last day to file a tax extension for your 20167Federal Income Tax Returns|
|Oct. 15, 2018||Deadline for Tax Extension Filers||Last day to e-file a 2017 Federal Income Tax Return electronically - paper returns can be filed later - if you applied for extension.|
Tax tip: Know how your business is organized
How you’re taxed depends on how you’ve legally organized your business. Most self-employed workers are sole proprietors due to the straightforward nature and low cost for setup. A sole proprietor isn’t treated as a separate business entity from the owner, so business income earned and expenses get passed through.
If you’re thinking about incorporating as an LLC or entering into a partnership, we’ve put together an article outlining the impact on your business’ taxes.
Tax tips for self-employed: Get the most out of your miles
Many self-employed workers forget that every single business drive can lead to a tax deduction. But, you can only do this if you’re tracking your miles and keeping an accurate mileage log.
The IRS allows you to write off 58 cents for every business mile in 2019. While that may not seem like a lot at first glance, just think about how quickly that can add up. Every trip to a client’s office, to pick up supplies, to a meeting or any other business drive can lead to money back in your pocket at tax time.
Tax tip: Writing off health insurance
If you’re self-employed, the IRS allows you to deduct the costs of your health insurance premiums. This deduction can include your dental, long-term care and the premiums that apply to you, your spouse and your dependents.
Keep in mind, you can’t take this write-off if you’re eligible to take part in a subsidized health insurance plan. An example of this scenario would be if you’re self-employed but your spouse is a W2 employee with subsidizing insurance plans.
The IRS also allows you to deduct the transportation costs that are primarily and essential to medical care. This can include expenses like bus, train, taxi and ambulance services, as well as the costs of using your personal vehicle. You can also deduct 17 cents per mile (in 2017) for your medical mileage.
Don’t forget to write off the business use of the home
If you work out of your home or use part of your home for business, you may be eligible for a home office deduction. But, be sure you’re following the rules because the IRS can crack down on this. We’ve written in detail about the home office deduction but the key takeaways are:
- You must use your home office exclusively for business
- It generally applies to self-employed workers but there are instances where W2 workers can take it
- There are two methods to calculate the write-off for business use of home
- A qualifying home office can lead to larger overall driving deductions.
We’d love to hear any tax tip you think can help other self-employed workers. Feel free to leave your best tip in the comments.
MileIQ’s blog does not constitute professional tax advice. You should contact your own tax professional to discuss your situation.