Being self employed comes with its advantages. You get to be your own boss and can write off expenses when you file your income taxes. However, with this freedom comes some added responsibilities. Here are three easy things you should do to keep track of your income and make sure filing taxes is pain-free!
1. Keep track of the work you do on a spreadsheet.
Create a digital spreadsheet to keep track of the information on the jobs you’ve completed.
Important information on your spreadsheet should include:
- Who the job was for
- What the job was
- How much you earned
Tip: Be sure to save this spreadsheet on an external device like a USB flash drive or on a cloud-based system like Google Drive as a back-up in case your original copy accidentally gets deleted.
2. Keep all of your receipts and file them.
Keeping your receipts is important to keep track of where and how you spend your money. You’ll also need them as proof if you want to write things off as expenses when you file your taxes.
Here are some tips for how to keep your receipts organized:
- Write a note on the receipt with an explanation on what it’s business purpose was.
- File physical receipts and organize them by category.
- Common categories include advertising, office supplies, and travel expenses.
- Scan or take pictures of your receipts to store and organize them digitally.
You should keep your receipts for 6 years in case the Internal Revenue Service (IRS) audits you.
3. Record all of your business expenses.
In order for an expense to be approved as a tax write-off, it must fall under both of these categories:
- Ordinary expenses that are common in your field of work
- Necessary expenses that are helpful when running your business
To determine whether an expense is ordinary and necessary for your business, ask yourself if the expense makes your job more comfortable and benefits your company, or if it is for your own personal benefit.
Remember to reach out to a trusted Certified Public Accountant (CPA) to help guide you through this process.