Debt is a pain, and if you run a small business your personal debt could have an effect on your business and your taxes. Freelance and contract workers have enough to deal with when it comes to tax time, so it’s not fun to learn that there are other things that can mess with you when tax time rolls around.
One depressing thing is knowing that if you get a good deal paying off a debt it could come back to bite you when you file your taxes. You just might get a 1099-C in the mail for the money you saved, which will make it count as part of your income for the previous year. That’s more income you’ll be paying taxes on.
Save All Of Your Paperwork
It’s important to save copies of all of the paperwork you get that revolves around your business and even your personal debts. Keep papers from debts you’ve paid off. Make copies of all the contracts you’ve signed for jobs and all of the checks that you’ve gotten in the mail. You may even want to start a document where you can track income and money going out when it comes to your business.
Keeping all of this paperwork may seem obsessive, but you may be surprised how much of it will become useful when you start doing your taxes. It can be a good investment to get a filing cabinet so you can keep these things organized. If tradition isn’t your thing, you can keep these all scanned into your computer, just make sure to have a backup file.
Save All Of Your Receipts
Part of the paperwork you should be keeping is all of your receipts. Whether it’s for medical bills or office supplies, your receipts may be able to help you get a decent sized tax break when the time comes. You’d be amazed at all of the things a freelancer or self-employed individual can claim for tax deductions.
Since there are continual changes being made in the world of the IRS, it makes sense to just save all of your receipts throughout the year, and then sort them out when January first rolls around. Mark notes on them to remember what it was that you used it for, whether it was work clothing or taking a possible client out for drinks.
You definitely want to be wise when it comes to doing your taxes as one of the self-employed. You don’t want to be pinpointed for an audit, but you also don’t want to pay more into taxes than you really need to. It’s fairly simple, these days, to do your own taxes online. However, if you’re new to self-employment you may want to hire someone else to do your taxes for you until you know how to do them yourself (that schedule C can be a little tricky in the beginning).