One of the most confusing things for people that work from home or operate a home-based business is taxes.
Even though there are some basic rules that apply to the way taxes are figured for the self-employed and independent contractors, it still becomes quite a challenge for many people to know what they’re supposed to pay when tax time rolls around.
Granted, you’re not supposed to be an expert in taxes unless you’re an accountant or a tax specialist that prepares taxes for a living. However, there are some things that you can do to help yourself come out ahead when it comes time to file taxes.
Independent contractors are people that work for clients or companies for an agreed-upon fee but aren’t eligible for any benefits. The companies or clients involved won’t be taking out any taxes on the independent contractors, either, which means that you’re going to need to keep up with certain things throughout the year.
These things include work-related receipts, how much square footage of your home is used exclusively for your office, your average power bill, phone expenses, and any supplies that you may have had to purchase for work through the year.
If you’re organized enough by keeping this information, when tax time comes, you can simply take all of these things along with the amount of your income to a tax specialist or your accountant to prepare your taxes.
Many people that work from home choose to set aside a certain portion of their income through the year so they’ll have the money if they need to pay taxes. This is actually a great idea if you can do it.
The problem is that now the economy being what it is, most people need every penny that they make in order to just live. With so many people being without health insurance, these costs come out of pocket and it can become even worse for large families to live on a token income.
So how much do you just “set aside” for taxes? When your family is hungry or your child needs a doctor visit, do you still “set aside” a certain amount of money from your income and just pretend that it’s not there when it’s so urgently needed?
Most people decide in these types of situations that the IRS can wait and they’ll deal with whatever comes at tax time.
Home-based businesses are a bit trickier when it comes to taxes. You need to keep track of all receipts relating to the business, records of all sales as well as inventory and how much all of that cost.
Basically, any money that went into or out of the business can be counted in some way on your taxes. Unless you’re well versed in this sort of thing, when you own and operate a home-based business, it’s usually better to go through an accountant. In that way, you can be more assured of not making any costly mistakes that will have you either owing more money or not receiving enough of it.
Don’t ever assume that you know everything you need to know regarding taxes. It’s definitely better to pay out a little money for accurate filing than risk messing things up.