Freelancers and self-employed people have more freedom than those in the traditional workforce. However, the tax preparation process is different, making it easier to make mistakes. As tax season approaches, you can save yourself from an audit and earn money back by avoiding these common errors. 

What Mistakes Do Freelancers Make When Preparing Their Taxes? 

1. Not Keeping Proper Records 

Your business expenses over the last year may have included traveling, meals, or purchasing necessary equipment. Keep the receipts of your purchases throughout the year. 

Use tracking software to determine how much time you spent on tasks so that you can maintain consistent and accurate billable hours. 

2. Reporting the Wrong Figures

Not maintaining records can lead you to report the wrong amount of income. The internal revenue service (IRS) will find and investigate any discrepancies found in the W-2 and 1099 forms from you and your clients.

You must keep all of the 1099s you received from your clients. When you collect them, add up the sum you were paid. Then, add up the sum of your invoices. The numbers should match.

It’s possible that your clients made a mistake when originally paying you. Reach out to them with your invoice, and they’ll correct the error. 

3. Not Taking Home Office Deductions 

Both renters and homeowners are entitled to home office deductions. Items like your computer and related furniture are well-known deductions, but there are others you can take advantage of. By figuring out what percentage of your costs go to maintaining your home office, you can count them as a deduction. This includes your energy bills to keep your computer and internet on and repairs to ensure your home is a productive working environment. 

You also might be entitled to percentages off from your homeowner’s insurance, homeowners’ association fees, property taxes, and mortgage interest.   

4. Not Paying Your Quarterly Taxes

Since you’re self-employed, state and federal taxes along with Medicare and Social Security aren’t taken out of your check immediately. You’ll have to pay an estimated tax every quarter instead if you expect to owe more than $1,000. 

If it’s your first year of self-employment, review your expenses every week to get an idea of how much you should pay. While quarterly tax preparation may be difficult in the first year, it will get easier as your self-employment continues. You’ll likely pay the same amount every year unless there’s a drastic change in your income. 

You can also avoid these mistakes by having your taxes done by professionals. In Holmen, WI, Engelson & Associates, Ltd. have the experience and reliability to ensure that your taxes are completed on time and correctly. To make an appointment, reach out to them at (608) 526-3437. For more information on their tax preparation services, visit their website.