Tax season is upon us, and while it might not be the most glamorous aspect of running your own business, it’s definitely a crucial one. As a photographer, videographer, or any other creative professional, managing your taxes efficiently can save you both time and money in the long run. So, let’s dive into five essential tips to help you conquer tax season while keeping your business thriving and effectively tackling tax filing season!
Tackling Tax Filing Season: 5 Tips for Creative Entrepreneurs to Keep Your Business Thriving
Tip #1: Start early to avoid delays and maximize your refund
Don’t wait until the last minute! Starting early gives you ample time to gather your documents, complete your tax return, and double-check all the necessary details. By filing early, you’ll be among the first to receive any refund you’re entitled to. Plus, if you owe money to the government, you’ll have extra time to plan your payment before the April 15th deadline. So, kick off tax season by taking a proactive approach!
Tip #2: Evaluate your retirement contributions
As a creative entrepreneur, you may have unique opportunities to boost your retirement savings. Making pre-tax contributions to a retirement account can help lower your taxable income and, subsequently, your overall tax burden. The more money you earn, the higher your tax bracket, so maximizing your retirement contributions can provide significant tax savings. Contributing to a retirement account, such as a solo 401(k) or SEP IRA, can lower your taxable income and reduce your tax burden. Plus, investing in your future is always a smart move. Be sure to consult with a financial professional to understand the best retirement savings strategy for your specific situation.
Tip #3: Don’t forget your side hustle income
If you have a creative business as a side gig alongside your full-time job, it’s crucial to report your earnings accurately. The IRS requires third-party payment providers like PayPal, Square, Venmo, and CashApp to file Form 1099-K when your gross payments exceed $600. However, personal gifts and reimbursements from friends and family don’t need to be reported. It’s essential to keep track of these transactions for your records and report it correctly to avoid penalties.
Note that the IRS plans to phase in the 1099-K requirements starting in 2024, with a $5,000 income threshold.
Tip #4: Understand standard deduction vs. itemized deductions
Navigating deductions can be daunting, but understanding the difference between standard and itemized deductions is key to maximizing your tax savings. While the standard deduction offers a flat rate deduction, itemized deductions allow you to deduct specific expenses like home office costs, equipment purchases, or professional development expenses. Although making donations is admirable, it doesn’t automatically translate into tax savings. If your total deductions are lower than the standard deduction ($13,850 in 2023), it’s best to choose the standard deduction. Consult with a CPA or do your research to ensure you’re making the most appropriate deduction choices for your business.
Tip #5: File and set up a payment plan if needed
Even if you can’t afford to pay your tax bill in full, it’s crucial to file your taxes on time. Failure to file can result in severe penalties. Instead, explore options to set up a payment plan with the IRS. By doing so promptly, you can avoid additional fees and stay in good standing with the IRS. If you need more time to gather your information, file an extension form to push the deadline out to October 15th. Remember, missing this extended deadline is not an option!
Tax filing season doesn’t have to feel overwhelming. By starting early, reporting your side hustle income, understanding deductions, maximizing retirement contributions, and filing even if you can’t pay in full, you’ll be well on your way to conquering tax season like a pro! Remember, educating yourself on tax matters and seeking professional advice when needed can save you time, money, and stress.
Here’s to a successful tax filing season and continued success in your creative endeavors!
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