For unbiased planners, tax season is usually a time of stress, confusion, and sudden bills. Being self-employed presents independence, however it additionally comes with its personal set of challenges — monitoring bills, sustaining money circulate, avoiding legal responsibility, and planning forward in order that there’s no penalty at tax time.
Referred to as “The Tax Translator,” Steve Hoffman, a former IRS Agent for 15 years who makes a speciality of tax recommendation for universities, has some solutions for unbiased planners right now of yr.
Skift Conferences: What’s the largest problem for unbiased planners, in relation 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 total 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 in relation to their taxes?
An enormous one is mileage. The present enterprise mileage charge to be used of your private automobile in 2025 is 70 cents per mile. So in case you traveled 300 miles placing collectively an occasion, that’s $21 of reimbursable bills to you. That provides up over the course of a yr.
I preserve a small e book in my automobile and document each enterprise journey, the beginning and ending mileage, and who I met with. In case you are audited, you’ll be able to’t re-create that info, and you’ll be audited by the IRS for bills from as much as three years in the past.
The opposite is to maintain receipts. In case 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. It will make your internet earnings go up, so you’ll owe extra in earnings taxes. And if it’s your 2022 taxes which are being audited, let’s say, you’ll owe curiosity on that unpaid earnings tax all the best way again to 2022.
What occurs if a planner doesn’t file estimated taxes?
The IRS doesn’t need to wait till you file your taxes by April 15 of the next yr, 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 variety of planners discover themselves in a scenario the place they produce other bills which are extra urgent, they usually don’t file their quarterly estimated taxes. The most effective factor to do is to make a cost, even when it’s not the total quantity, as a result of the IRS will cost you curiosity on the unpaid taxes, which is able to proceed to construct.
What in case you can’t get your taxes collectively by April 15?
You may file an extension. However bear in mind, the extension is just of the time to file — not an extension of time to pay. In case you really feel you’ll owe tax while you file your federal tax return, then you must make a cost earlier than April 15. You can also make the cost while you file the extension. If there’s a steadiness due while you file your return, you’ll obtain a penalty from the IRS.
Is it vital for unbiased planners to set themselves up as LLCs?
I like to recommend incorporating to guard your private belongings from any legal responsibility that is perhaps attributable to lawsuits. If an attendee journeys over a wire on the ground, they will embrace the planner within the lawsuit. Incorporating will shield your private belongings, like your home, automobile, and checking account, from the lawsuit. I like to recommend incorporating as a Restricted Legal responsibility Company (S-Corp), somewhat 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 every year?
I like to recommend assembly with them round July 1 of every yr. It will replace you on any tax legislation modifications that will profit you, and you’ll let the accountant know what you’re doing which may influence your taxes (marriage, divorce, a brand new little one, that you simply purchased a home, and so on.). Taxes are greater than a once-a-year factor.
