Being self employed comes with a ton of perks. You get to be as flexible as you like, as independent as you want to be and you have the ability to build something that’s entirely for you. You are in charge, you are leading and you are also the one in charge of yourself at tax time. Gulp!
Tax time can feel a lot more complex when there’s not an employer above you handling it all behind the scenes. It’s the business equivalent of having an adult do the work – but now you’re the adult. The good news is that tax season is going to be much easier when you’re planned ahead and organised with your paperwork. Let’s look at some important things that you should keep in mind as a self-employed individual.
Stay on top of your records
One of the big mistakes that self employed people make? Leaving paperwork for the last minute. It’s not a good idea, and you need to keep your paperwork and records organised through the year. If you wait until the last minute, you have to deal with the scramble. This is particularly important as systems like MTD for income tax continue encouraging more digital record keeping and reporting. Using accounting software, digital receipts and a super organised filing system makes managing your paperwork and finances a LOT easier. The less time spent hunting for invoices the better.
Separate your business and personal finances
Mixing business and personal expenses creates a lot of confusion that could have been avoided. This is so important when preparing your tax information, too, as having a dedicated business bank account keeps it all together and makes it easier to see what you need to track. It also creates clear records if you need to review your spending or apply for grants and funding. Even for smaller businesses or sole traders, separating finances often saves a lot of time during tax season.
Understand allowable expenses
One advantage of being self employed is that certain business related expenses could be deductible. Depending on the nature of the business itself that could mean anything from equipment and software to office costs, travel expenses and any professional services you invest in. Keeping all of your receipts and maintaining your records is vital. While it can be tempting to claim everything that remotely resembles a business expense, it is always best to understand and play by the rules.
Don’t wait until the tax deadline
Tax returns always seem far away until they’re really not – and it feels sudden at that moment. Leaving everything until the final week will create unnecessary pressure and increase the likelihood of mistakes. Preparing your records carefully and in advance will ensure that you don’t miss anything along the way.
Working with an accountant is very helpful in this moment and managing taxes is more successful as a result. While tax obligations may feel like a lot, they don’t have to be – not when you’re on top of it.
