Ogden, Utah, has a lot to offer entrepreneurs. From its beautiful historic architecture on 25th street and loads of gorgeous mountain scenery to its comfortable affordability and housing, freelancers and other self-employed professionals have every reason to love the city and all its surrounding locations. It’s the perfect place to launch your business and turn your dreams into a livelihood.
However, tax problems can derail your plans before you get very far if you make a serious mistake — and taxes for the self-employed can be complicated. At tax time, a lot of self-employed people start having their friends who only have a few W2s to file (and we don’t blame them).
Let’s talk about some of the most important things you need to know about your taxes if you’re self-employed.
Good Financial Records Are Essential
If you’ve never been much of a recordkeeper before now, it’s definitely time to start. However, we’re not talking about using the proverbial shoebox to store your receipts. These days, automated personal finance software can keep track of every dime you spend on the business and even sync up with your bank accounts.
While programs like Mint are great if you need help establishing a personal budget, we recommend Quicken for all of your business financial software needs. It’s a user-friendly program that’s well-established. It can handle both your personal and business transactions and can even track the value of your assets as you grow and help you keep track of all those deductible business expenses you make.
Pay Close Attention To Your Quarterly Tax Liabilities
Self-employed individuals are generally required to pay quarterly estimated tax payments on what they expect to earn to the federal and state government. IRS Publication 505, Tax Withholding and Estimated Tax explain how you can go about making those payments.
If you wait the whole year to pay your tax bill all at once, you can end up owning a pretty big bill, including a penalty — with interest. The Internal Revenue Service expects you to pay timely. In 2019, your quarterly taxes are due April 15, June 15, September 15 and January 15 of the next year. Keep in mind that even if you have a filing extension for 2018, you’ll still owe those quarterly payments on time.
Don’t Ignore Your Local Tax Obligations
Even though you don’t have to make quarterly payments on your state and local taxes, you still have to account for that bill at the end of the year. That means managing your income carefully throughout the year so you aren’t left with a bill you can’t pay.
Sales and use taxes are also something that you may have to collect, depending on the nature of your business. Sales taxes are imposed on any taxable item that’s sold, transferred or exchanged. Use taxes are imposed on the use, consumption or storage of any service or taxable item on which tax hasn’t already been paid.
How much you need to collect and pay will vary by the location in which you set up shop. In general, however, Utah is considered very “tax-friendly” to business because it keeps those taxes to a minimum. For example, the combined sales and use taxes in Ogden and nearby Roy total just 7.10%. The taxes go down however in areas like Clearfield and Layton, where the rates are just 6.85% each.
If you fail to collect these taxes when you should have, the state will hold you personally liable for its missing revenue — so don’t overlook this part of your job.
Learn To Make Use Of Deductions And Expenses
As a self-employed professional, you may be able to claim a number of purchases and other expenses throughout the year as business expenses.
For example, you may be entitled to deduct a certain amount of your housing costs if you operate your business from home or keep a home office. Your internet bill might also qualify as a business expense if you use it for work. A careful exploration of all the tax deductions available to you is the best way to lower your gross adjusted income and taxes.
The freedom of being a “self-made” man or woman brings with it the burden of responsibility for your own taxes. Fortunately, you don’t have to go it alone. McKay’s Tax Services can assist you at any stage of your business development — from startup to scale-up. Whether you’re located in Ogden, Clearfield or Layton, we can help you understand your tax obligations and teach you to better manage them or we can take the burden entirely off your hands altogether.