The IRS considers anyone who works for themselves to be self-employed and must file a Schedule C tax return on all income they receive. That includes everyone from someone already on social security who gets paid cash for mowing the neighborhood lawn to the person who gets money through sales, the rug-layer who hires local shops for the job. installation and any other that generates income. Some people even need to file more than one Schedule C.
The secret to making a business work for you is to keep receipts for every penny spent so you can offset that income and file it properly. Most independent contractors don’t have time to do regular monthly accounting, so they get stuck trying to organize everything when faced with that disorganized stack of receipts at the end of the year. And if you know the IRS rules for your industry, that may be enough, but you need to know what’s considered normal for your industry.
While it’s easy to find someone to prepare a Schedule C small business tax return, unless you know exactly what the IRS expects from a self-employed person, that tax return won’t be accurate and you’ll never get all the information you need. allowable tax deductions.
Surviving a tax audit is a snap with organized records. Independent contractors will want to start by following these four simple rules:
- Never mix business income with personal income and expenses. The IRS can disallow otherwise worthwhile deductions if you mix them with personal business, so always deposit all business income in a separate bank account.
- Keep a detailed log of all business miles, especially if you use a vehicle for personal miles as well. This is necessary to take the mileage deduction, which is often great for independent contractors.
- When deducting meals, you must write on the receipt the names of everyone who attended that meal, as well as the business that was discussed. Don’t forget the tip.
- Those who manufacture or purchase items for resale must keep track of their inventory for IRS purposes.
You should also learn what you can and can’t deduct, how to keep track of tips, document income, manage inventory, produce audit-proof records, and create a simple report with all the numbers needed for a small business tax return. Schedule C businesses. All of this should be done before you visit the tax professional, or you can use it to complete your own tax form.