Preparing for Tax Time - Self-Employed Individuals

The Taxman: that guy that everybody loves to hate. Whether he is taking too much out of your paychecks before payday, or raking you over the coals in April, it seems as though everyone thinks their tax treatment is unfair.

Over the coming weeks, I’ll be blogging about various tax issues that may or may not be pertinent to your tax situation. The fact is, you can’t avoid the The Taxman. He’s like the dentist; the longer you wait to talk to him, the more it’s going to hurt. Similarly, if you plan ahead you can minimize the discomfort in either scenario.

Tax planning can mean a lot of things, but today I am going to focus on tax planning for self-employed individuals. Self-employed may mean that you intentionally set out to own your own business, or that you worked for someone else that considered you to be an “independent contractor” and because of that they did not withhold taxes from your check. Either way, there are major tax consequences that you should be aware of so that you are not shell-shocked come April.

“Why are self-employed individuals subject to a different tax rate?”

This is the most common question I get from those new to self-employment. The short answer is this: When you’re working a job where your wages are being withheld, you and your employer both bear the burden of your Social Security and Medicare taxes. Your employer is responsible for a certain percentage of that tax, and you are responsible for the remainder, which is withheld from your checks and remitted to the IRS on a regular basis. When you’re self-employed, you are responsible for the entire amount. The combination of Social Security and Medicare that self-employed individuals must pay is commonly referred to as Self-Employment Tax, or SE Tax.

“I’m self-employed. What should I do to plan ahead?”

Since taxes are not being withheld from your checks and remitted to the IRS on a regular basis, it’s a good idea for self-employed individuals to utilize certain strategies to get ahead of the ball on their annual tax liability. There are many strategies that can be used, and you should consult a tax professional on the best way to plan ahead for your particular situation, but here are a few suggestions to help you get started.

1.       Save a portion of each check

The easiest way to not get upset about how much of “your money” The Taxman takes each year is to not think of it as “your money” in the first place. I recommend that my self-employed clients put a certain percentage of each check they bring home directly into a savings account, or other account that they plan not to touch until tax time. Essentially, this is the government’s money, they just haven’t come for it yet. Put it somewhere you know you won’t spend it until it’s time to hand it over to The Taxman, and you might even earn a little bit of interest on it in the meantime.

2.       Track those expenses

Frequently, my clients who are new to the self-employment game haven’t adequately tracked all of the expenses that they could be writing off. If you’re self-employed, don’t forget to keep track of things like your mileage, cell phones bills and how much you’re spending on supplies. Those items, combined with many other expenses you may be eligible to include, will have an effect on your tax liability that is typically advantageous for the self-employed.

3.       Make estimated payments

If you’re concerned about your tax situation because of the amount of money you’ve earned from self-employment, you may want to consult a tax professional about making estimated payments to the IRS. Your estimated payments will vary depending on how much you’ve earned, your marital status, and whether or not you work another job that is subject to withholding (just to name a few facets of the calculation). By making estimated payments you can avoid penalties and interest that you may be subject to for underpayment. Additionally, you won’t be tempted to spend that money that has to go to The Taxman, because you’ve already sent it.

There are many blessings and burdens of self-employment. To maximize the blessings and minimize the burdens, self-employed individuals can see tremendous benefit from employing a Bookkeeper and Tax Professional. Let Canavan Financial be your one-stop shop to meet those needs. If you’re not already a client, contact us today to set up a complimentary consultation to discuss how we can help you with your business needs. Call 303-284-1096 or email me directly at kcanavan@canavanfinancial.com.

5 Things You Didn't Know You Could Write Off - Personal Income Taxes

"I normally just use (insert generic tax software here)." This is the typical response I receive when I ask someone who they have doing their taxes. For some, this is perfectly fine; If your wages have already had taxes withheld, you have no dependents and nothing to itemize, you're probably receiving the best refund you can from that generic tax software. However, if your tax situation is not that simple, you might be missing out on valuable deductions because you're not utilizing the expertise of a Tax Professional. The following are just a few of the many deductions that you may not be aware you could be writing off (and generic tax software probably won't tell you about). 

1. Hobby Related Expenses 

So, you're crafty, and it turns out you're pretty good at it. You decide to sell your wares on Etsy, or maybe just to some friends and acquaintances. If you have generated revenue from your hobbies, you may be eligible to deduct the cost of those hobbies on your taxes. This deduction is for taxpayers that are generating money from their hobby, but do not consider their hobby to be a business. The IRS has special rules and qualifications to distinguish businesses from hobbies that a Tax Professional can interview you about to determine just how much of your crafting materials you can write off. 

2.  Casualty or Theft Losses

According to Rain Hughes, CFP EA, "A casualty is the damage, destruction or loss of property resulting from an identifiable event that is sudden, unexpected or unusual." While it may seem obvious that there are going to be accommodations made for someone who experienced a loss due to a tornado or earthquake, what about when that punk kid from across the street vandalizes your garage? If the incident meets certain criteria, you can write off the cost of cleaning it up. A Tax Professional can help you to understand what you can write off, and to what extent. 

3. Donations

You know when you take all that old stuff to Goodwill and they ask you if you want a receipt? That's because technically, you relinquishing your old junk to them counts as a charitable donation, which you can write off. The same is true for donations to your church, or other charities that you may give cash or non-cash donations to throughout the year. As with all deductions, there are limitations to the benefit you can take, but a Tax Professional can help you understand how to maximize the benefits of donations you were going to make anyway. 

4. Job Search Expenses

If your job search aligns with certain rules, you can write off costs associated with that job search. Examples of these types of expenses include fees paid to an agency to assist you in finding a job, or the price of sending out your resume, and are not contingent on you being hired. 

5. Tax Preparation Fees

Many people believe that Tax Professional fees are too expensive to be beneficial, but what they may not know is the fees you pay can be deducted from your taxes. 

This is just a small sampling of the items that you may be eligible to deduct from your taxes, which could have a significant impact on your tax liability. Most consumer use software for tax preparation does not ask you, the taxpayer, enough questions to fully understand the deductions that you are eligible for. However, a Tax Professional knows the laws, knows the rules, and knows how they can benefit their clients. 

Is it time to ditch your software for a real, live Tax Professional? Canavan Financial Group is always accepting new clients. Call 303-284-1096 or email kcanavan@canavanfinancial.com to schedule an appointment. 

Now Hiring! Part-time Administrative Assistant.

Great news! Canavan Financial is ready to expand our team. 

Have you always wanted to work in the fast-paced and exciting field of part-time data entry? Do you long to find satisfaction in spending hours looking at bank statements? Do words like "taxes" and "journal entries" inspire you? Do Boston Terriers in bow-ties make you happy? Well then... you're kind of weird. Also, you should probably come work with us. 

Canavan Financial Group is a bookkeeping firm currently based out of Englewood, CO. We service a variety of client bookkeeping and accounting needs, as well as general business consulting.

The available position is currently flexible part-time, with the possibility of expanding to full-time in the future. Candidates should anticipate working 10-20 hours per week initially. 

Candidates should be:

- punctual and reliable

- enthusiastic

- attentive to detail, especially redundancy  

- enthusiastic

- innovative 

- able to endure monotony without complaint

- open-minded, level-headed, reasonable

Job Requirements:

- Customer Service Skills 

- Computer Proficiency

- Organizational Prowess 

Additional Desired (but not required) Skills:
- Business Education

- Accounting Education and/or Experience

- Sales Background

- Ten Key/Adding Machine

- Quickbooks Experience

- Excel Experience

- Drake Software Experience 
- Income Tax Preparation Background

- Marketing Skills (social media experience, strong professional network, innovative marketing ideas that don't involve Groupon, etc). 

- Understanding of why Comic Sans is not an appropriate font for anything

Compensation includes base-pay, incentives for new client referrals and unlimited cuddles from our company mascot. 

Interested candidates should email their current resume, a cover letter and their salary requirements to Kaleigh at Kcanavan@canavanfinancial.com no later than Monday, July 28th. Please include the word LilLeilou in your subject line to identify your message as non-spam. 

Please Note: Canavan Financial reserves the right to conduct a criminal background check on all applicants.

Canavan Financial Group is an equal opportunity employer.