Do You Need Professional Tax Preparation If You're Self-Employed?
Filing taxes is never fun. Even individual preparers with relatively straightforward tax returns can often run into problems, and the complicated instructions found on many IRS forms don't help. Even worse, there's very little immediate feedback when filing your return, and you may need to wait weeks or longer to discover if you've made any mistakes.
While freelancing may initially seem similar to working as a W-2 employee, there are numerous extra pitfalls and complications. These complexities can crop up when filing your taxes, making the process even more confusing and difficult. This guide will help you decide what you should do about your taxes if you're about to embark on a new career as a freelancer.
What Makes Taxes More Complicated for Freelancers?
Freelancers often operate as individuals using pass-through business organizations. While that may seem complicated, it's a fancy way of saying that the line between business and personal taxes tends to be a little blurry for most self-employed individuals. Instead of paying taxes for your business as a separate entity, you pay your business taxes as an individual.
However, this method of filing can hide many complexities that often take new self-employed individuals by surprise. For example, a typical individual filer will rely on W-2 forms from their employer to provide a detailed record of income. Self-employed individuals often receive 1099-MISC forms, but not all employers will provide them.
As a result, tracking income is far more complicated for freelancers and other self-employed workers. You need to manually record your income to confirm the values on the 1099-MISCs you receive and to track income for which you never received any form. Additionally, you'll need to carefully record your expenses to create an accurate profit and loss statement on your tax filing.
How Do Professional Preparers Help?
The added complexities of tracking profit and loss can be challenging, especially if you work for numerous clients or deal with inconsistent expenses. It can also often be hard to understand how to turn your income and expenses into accurate profit and loss statements, ultimately making filing complete and accurate taxes much more challenging.
If you've never filed your own taxes before, or if you'll be filing as a business for the first time, it can be extremely helpful to work with a professional to deal with these issues. Not only will they help you with your filing, but they will also review your records to ensure their completion and accuracy. This review will help you see where problems with your record-keeping may be affecting your taxes.
While do-it-yourself tax preparation may seem within reach as a freelancer, it's critical to understand that small mistakes can have real long-term consequences. Working with a professional filer will help you avoid these potential pitfalls while potentially improving your business record-keeping and ensuring you minimize your tax burden as much as possible.
Reach out to a service like Hough & Co CPA to learn more.