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Posted by Pat Raskob

5 Tax Myths Self-Employed Individuals Should Know

5 Tax Myths Self-Employed Individuals Should Know

The tax situation is an overwhelming condition for self-employed individuals. Many could be unsure of the rules, options, financial obligations, and how to handle the situation. In an effort to manage the tax filing, some may omit savings and incentives. 

However, some tax myths are flying around and causing panic and problems for self-employed taxpayers. This article is compiled to clear the fog around self-employed tax status. 

You Must Hoard Receipts

There is a myth that self-employed taxpayers must have receipts for each tax deduction on their returns. Thus, many taxpayers have compartments or grocery bags full of them waiting for the IRS's call. Although receipts are valid proof, the IRS has included bank and credit card statements as legal forms of records. However, you can use them when you're buying with cash over $75. In essence, don't get a headache because of receipt; the 21st century has other digital forms of showing your transactions, and this data can be obtained online.

You fall short of preparing for a massive income tax bill

Many self-employed have no choice but to seek advice concerning the installment tax bill for the coming year with insufficient income. The following year's earnings may not be enough to cover the previous year's tax debt. To be on the err side, you can set aside the portion for paying your previous debt from every monthly allowance or salary. The set-aside cash should be kept in a different account, making it inaccessible until the due date. Another best way to go about it is to set a monthly record of your irregular income to monitor your business and personal finances. A budget creates a focus on your expenses while keeping track of your fluctuating income in the holding account.   

You Must Track Miles

A self-employed person can claim deductible expenses on car usage. While saving 58 cents for every mile as mileage deductible, keeping track of every trip and its purposes is a hassle. So, if you're not an uber driver or partake in long driving hours, it will be challenging to track miles. In essence, monitoring your travels will cost you tax money, but driving for 20,000 miles per year can save much more on car expenses than mileage.

A "Home Office" Must be a Separate Room

Not all self-employed have a large home or a home with many bedrooms to claim a room as an office. However, you can still enjoy home office deductions by having a workstation in your home or apartment. The workstation should be where all the office work is done. To this end, you can claim a home office deduction from your tax return. In addition, you can claim items bought for office use. 

Only Full-Time Employees Should Claim Tax Write-Offs

That is far from the truth. The standard deduction is part of itemizing 1099 work expenses allowing you to claim the deduction as work expenses. The claim is available for part-time 1099 contractors as well as freelancers. In essence, even a full-time employee with a W2 job still offering part-time self-employed services can deduct the work expenses. 

It's okay to wait to pay your income tax debt

Many self-employed feel it is safe to delay paying their tax debt. But that is false. The best bet is to pay all tax debt before April 30th to avoid penalties and interest. The IRS imposes a 5% penalty on debt not canceled before the deadline. Afterward, an additional 1% interest is added each month. Also, self-employed people that do not file their tax returns or do late filing can miss many benefits imposed by the government. 



Pat Raskob
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