I know taxes are not the most fun topic of conversation. However, they’re a lot less painful when you are prepared for them. I am not self employed, but I can give you a few tips if you are since both my parents are self employed.
Now, I am not a financial advisor, nor do I work in the finance industry. However, I have never been in a bind when it comes to my taxes because I do these things.
Set up your paycheck correctly.
Make sure that you are taking some money out already for taxes. You’ll have less sticker shock when it comes time to pay the rest (or get a refund!) because you were overly prepared. This means that you need to double check your filing status, how many dependents, etc.
Keep track of your potential deductions throughout the year.
I keep a Google Sheet with all of my potential deductions on them. I have it set up for the date, where the purchase was made, the cost, and which category it would potentially fit under. So for instance, when I got to the dentist, I pay $69 for a regular visit. So, I put the date of my visit, dentist, $69, and put an X in the Medical category. When I pay my tuition, I make sure that it is marked under education. As a teacher, I can take off a certain amount (about $200) of things I purchase for my classroom out of pocket. This year, I made a point not to purchase things because we still do not know how long we will be in person. I started this last year, and it was a total lifesaver! You still need to keep your receipts, though.
Prep early so that you aren’t behind.
Make sure that you are ahead of the ball game. Don’t wait until the last minute to start preparing and filling out forms. This saves you from paying the late penalty.
Save some each month.
Especially if you are self employed this is a game changer! My mom told me that when my dad first started his business (before I was born), she set aside 30% every month of the income so they had it ready to go. If 30% sounds a little high, just remember you’ll have that money left over, so it’s like saving it!
Obviously, you have to wait until all your paperwork from your job(s) are in. However, the earlier you file the less you have to worry about a late penalty.
File for Free
My last tip is to find a place to file for free or the lowest cost if you make under a certain amount of money. Once you hit a certain threshold, you have to pay. However, as a teacher, I do not make enough to have to pay.
I know we’re not even to 2021 yet, but it’s better to be prepared when it comes to taxes!