Unless you handle people’s taxes for a living, tax season is unlikely to be your favorite time of the year. It’s when you have to go through your year’s expenses and income and make sure all your ducks are in a row for the IRS.
Not only is tax filing a time-intensive task for sole traders who have enough on their plates, but it can also be risky when you’re not familiar with tax laws. Fortunately, you might be able to sail through the tax season by doing some of the following things.
Leave Tax Returns to the Professionals
You won’t need to lift a finger or worry about a thing when you hire the best tax accountants in town. Rather than burning the midnight oil while furiously tapping on a calculator, you can hand over your financial records to an accountant and have them compile your financial information for you.
Tax accountants can also examine your financial statements, organize financial records, inspect your accounting systems, and create budget plans. Essentially anything money-related that you don’t want to take care of, they can manage on your behalf.
Report All Income
Income tax rates can be astronomical for the average earner, and it can be tempting to leave some of your earnings off the books to avoid paying tax on everything you make. However, this is not advisable for a number of reasons.
The IRS receives a copy of all 1099-MISC forms to match your income to your reported income. They know how much you’ve received and might contact you about inconsistencies if you don’t declare all earnings.
Separate Business and Personal Expenses
Many sole traders start their businesses as side hustles and eventually build their way up to operating fully-functional businesses. As a result, they might direct income to their personal bank account since they rely on it to cover their everyday costs.
Once tax season arrives, this combination of business and personal expenses can make filing complicated. The IRS might even start looking at all your personal accounts due to the complexities surrounding your money situation.
Keep Excellent Records
As time-consuming and monotonous as it can be to ensure you keep records of all bills, invoices, and expenses, it can be crucial for accuracy when filing your taxes. Failure to keep good records might mean you’re paying more tax than you need to be, or it could put you at risk of an audit if the IRS notes inconsistencies.
Fortunately, hiring an account and using accounting software can make record-keeping much easier than ever before. Keep at least three years of records through these avenues, and you should avoid problems.
Tax law is complicated, and if you don’t immerse yourself in its intricacies year-round, it’s unlikely that you’ll have a firm grasp of everything related to filing your taxes correctly.
When tax season rolls around once more, don’t tie yourself up in knots. Instead, align yourself with an accountant who will be more than happy to answer any tax-related questions you might have. The more you know, the smoother and less stressful each tax filing season will be.
Being a sole trader and managing everyday operations on your own can be hard enough, but tax season can push you over the edge. Rather than battling through this challenging time of year, take note of the tips above. You’ll be surprised at how stress-free the next tax filing season becomes when you outsource to the experts, ask questions, and keep good records.