Peter J. Creedon, CFP®, ChFC, CLU went from working in corporate America to becoming an entrepreneur and business owner in 2013. He is founder and CEO of Crystal Brook Advisors, a NY Registered Investment Advisory firm, focusing on helping young professionals and business owners in reaching their financial goals.
Let’s face it, no one wants to pay more on their taxes than necessary, and as someone who is Self-Employed, you face unique regulations and deduction possibilities. In fact, there are many advantages to being self-employed when it comes to taxes. Unfortunately, the U.S. tax code is anything but simple, and it is easy to overlook some of your credit opportunities.
To help you out, we’ve put together a list of 10 Tax Hacks to be aware of:
1) Find a Certified Public Accountant (CPA)
If you are a self-employed, one of the first tasks is to find a Certified Public Accountant (CPA) you feel comfortable working with. A CPA’s job is to keep you compliant and up-to-date with the IRS rules, regulations and filing deadlines. Interview a few and select one that meets your business needs. When you select a CPA, clearly understand what they expect from you, and the services they will provide.
If you don’t have time to pre-screen, you can also hire a CPA quickly through your phone/computer. Taxfyle is a software built to make your tax filing process easier. Simply take a picture of this year’s W2/1099 and last year’s tax return and you will receive an instant quote from one of the TaxFyle CPA’s along with a work request.
2) Know All Relevant Deadlines
Know your estimated tax, employee filing deadlines and requirements for not only the IRS, but your state and city, if required. Let’s face it, most people don’t like writing tax checks to the IRS (Internal Revenue Service). If you owe late or underpayment penalties, that check amount may increase substantially depending on your business situation.
3) Have a Tax Strategy
If your business is on a cash basis, as most small businesses are, meet with your CPA in early December of each year to discuss your year-end tax strategy. As a small business, you can manage some of your income and expenses to meet year-end goals and may delay, accelerate income or expenses into the current or next year. If your business is on an accrual accounting basis, see your CPA for the best strategy.
4) Collect Your Receipts
Make sure you take care of all business receipts for tax preparation purposes. Ask for a receipt for all your expenses. If you make it a habit, you will make your life and taxes a lot easier. Include the tax due date in your calendar. If you are busy, reconstructing yesterday activities is challenging, then how are you going to remember last week or last year or if you are being audited from 3 years ago? Get organized.
If you have a shoebox or folder for your receipts, that’s totally okay, but now there are also apps where you can simply take a picture of your receipts and the app will store them for you. ShoeBoxed and WaveApps are two recognized apps that provide this function.
5) Be Realistic About Deductions
Discuss deductions with your CPA so you know what is realistic and what is not. If you have a home office, you can take a percentage of your heat/ cooling, utilities, taxes, phone, internet etc., as a business deduction.
6) Travel expenses are easily misunderstood
Know what is deductible and not. Commuting to work is not normally a deductible expense, but travel to meetings or a second location by car may be. Track your car mileage, dates, names and other proof of valid business expenses.
A good resource for car travel mileage is Triplog. Sorry, those parking, and moving violations tickets are usually not deductible. An example of a travel deductible: you travel to another country for the holidays and plan to see a client. You plan on paying the costs. The good news, part of your flight, hotel, car rental, entertainment, etc., may be deductible expenses.
7) Car Mileage Expenses
Car Mileage expense for 2016 is 54 cents per mile driven for business, 19 cents per mile for medical or moving expense and 14 cents for charitable activities. If you have higher actual costs than your mileage deduction, you can use the actual costs.
8) Know Your 2016 Deadlines
You need to take a portion of every check and save to accrue for Uncle Sam and his friends. Start accruing Federal, State and Local taxes (if required) that will be due this year.
9) Pay Yourself First
Develop a mindset to “pay yourself first” and fund a retirement plan every month. You may not be able to maximize your contribution, however, put something away for the future. Invest in yourself and let Time Value of Money work for you.
10) Your CPA & Financial Advisor Should Talk
Give permission to allow your CPA and Financial Advisor (CFP®) to talk to each other. Your advisors cannot discuss your information without your permission, so allow them to help and work with each other. This will also save you time and allow information to be forwarded to the IRS faster and possibly more accurately.
Share your tax tips in the comments below.
Peter J. Creedon, CFP®, ChFC, CLU went from working in corporate America to becoming an entrepreneur and business owner in 2013. He is founder and CEO of Crystal Brook Advisors, a NY Registered Investment Advisory firm, focusing on helping young professionals and business owners in reaching their financial goals. For over 18 years, Peter has advised, guided and educated young professionals, families, private wealth investors, small businesses and large corporation with their financial planning and investment needs. His dry sense of humor is simply a bonus.
Disclaimer: Crystal Brook Advisors is a Registered Investment Advisor, we do not provide Tax or Legal Advice.