For unbiased planners, tax season is usually a time of stress, confusion, and sudden bills. Being self-employed gives independence, but it surely additionally comes with its personal set of challenges — monitoring bills, sustaining money stream, avoiding legal responsibility, and planning forward in order that there’s no penalty at tax time.
Generally known as “The Tax Translator,” Steve Hoffman, a former IRS Agent for 15 years who focuses on tax recommendation for universities, has some solutions for unbiased planners presently of 12 months.
Skift Conferences: What’s the greatest problem for unbiased planners, relating to taxes?
Withholding. The everyday worker will get half of their Social Safety tax paid by his or her firm. The Social Safety tax charge is 12.4%; the employer pays 6.2% and the worker pays 6.2%. However the self-employed planner should pay all the 12.4 %, plus pay the complete 2.9% of the Medicare tax.
So self-employed unbiased planners should pay 15.3% of their internet earnings to Uncle Sam. After which they must pay the federal earnings tax on their internet earnings too.
What are some widespread errors self-employed folks make relating to their taxes?
A giant one is mileage. The present enterprise mileage charge to be used of your private automotive in 2025 is 70 cents per mile. So if you happen to traveled 300 miles placing collectively an occasion, that’s $21 of reimbursable bills to you. That provides up over the course of a 12 months.
I hold a small e-book in my automotive and document each enterprise journey, the beginning and ending mileage, and who I met with. If you’re audited, you may’t re-create that info, and you may be audited by the IRS for bills from as much as three years in the past.
The opposite is to maintain receipts. Should you purchase a pc for $1,000 and are audited and might’t produce a receipt, the IRS will take away that deduction off your taxes. This may make your internet earnings go up, so you’ll owe extra in earnings taxes. And if it’s your 2022 taxes which can be being audited, let’s say, you’ll owe curiosity on that unpaid earnings tax all the way in which again to 2022.
What occurs if a planner doesn’t file estimated taxes?
The IRS doesn’t wish to wait till you file your taxes by April 15 of the next 12 months, in order that they got here up with quarterly estimated funds. (The deadlines for these in 2025 are January 15, April 15, June 15, and September 15.)
However a whole lot of planners discover themselves in a state of affairs the place they produce other bills which can be extra urgent, and so they don’t file their quarterly estimated taxes. The perfect factor to do is to make a cost, even when it’s not the complete quantity, as a result of the IRS will cost you curiosity on the unpaid taxes, which can proceed to construct.
What if you happen to can’t get your taxes collectively by April 15?
You may file an extension. However keep in mind, the extension is just of the time to file — not an extension of time to pay. Should you really feel you’ll owe tax whenever you file your federal tax return, then you need to make a cost earlier than April 15. You can also make the cost whenever you file the extension. If there’s a stability due whenever you file your return, you’ll obtain a penalty from the IRS.
Is it necessary for unbiased planners to set themselves up as LLCs?
I like to recommend incorporating to guard your private property from any legal responsibility that is perhaps brought on by lawsuits. If an attendee journeys over a wire on the ground, they’re going to embody the planner within the lawsuit. Incorporating will shield your private property, like your own home, automotive, and checking account, from the lawsuit. I like to recommend incorporating as a Restricted Legal responsibility Company (S-Corp), fairly than a normal company group (C Corp). Tax preparation charges are a lot decrease with the S Corp.
Ought to unbiased planners meet with their accountants greater than annually?
I like to recommend assembly with them round July 1 of every 12 months. This may replace you on any tax regulation adjustments that will profit you, and you may let the accountant know what you’re doing that may influence your taxes (marriage, divorce, a brand new baby, that you simply purchased a home, and so forth.). Taxes are greater than a once-a-year factor.
