It's that time of year again -- tax time. Ready for some tax tips?
If you're groaning, you're not alone. Nobody likes taxes, but if you're a military spouse who is self-employed, it can feel even more challenging.
As a military spouse, you may have a side hustle or consider yourself self-employed. If that's the case, you'll need to file an annual return and pay quarterly taxes.
But, it doesn't have to be as tricky as you think.
Staying organized and having a basic understanding of taxes on small business income can make filing taxes a much smoother process. Plus, there are places that offer free tax prep to military members and their families!
Still wary of the rapidly approaching tax return time?
Here are our top tax tips to help you get through tax season:
Tax Tip #1: Understand the Hobby vs Business Test
If your hobby is an activity that can make you money, you'll need to decide: Do I want this as a business or a hobby? Whether you make jewelry, knit or bake cupcakes, if you sell it, you have to report it. Hobbies are mainly done for pleasure, whereas business is about making a profit. Special rules allow for hobby deductions, by the way. Check the IRS rules against your specific situation.
Tax Tip #2: Track Your Income and Expenses
If you're running a business, this is the top tax tip for those who are self-employed or have side hustles: If you're earning money, you need to track it. Spending money? You'll also need to track what it's being spent on for deduction purposes. If you expect to earn more than $400 as a self-employed individual, for example, you'll have to report it. Your clients should always send you 1099 forms by Jan. 31 of each year for the previous year's work.
Tax Tip #3: Report Income to the IRS
Whether you're running a side hustle on Etsy or doing freelance work, it's important to know how to manage your business to navigate tax time with ease. Just like a regular job, you have to report any earnings to the IRS. This is done on a Form 1040 at tax time.
Tax Tip #4: Pay Quarterly Taxes
Not interested in potentially paying a huge tax bill come April 15? Then you'll want to look into paying quarterly taxes. If you have a bookkeeping software, these will usually keep track and notify you of upcoming payment estimates. It's important to note that these estimated payments are for income tax, alternative minimum tax, and self-employment tax.
If you fall into these categories, you'll need to pay estimated quarterly taxes: Individuals who are sole proprietors, partners or S corporation shareholders.
You'll usually have to pay quarterly if you owe $1,000 or more at filing return. Corporations are expected to pay if they owe $500 or more a tax filing time.
For the current year, you don't have to pay estimated tax if you meet the following three conditions:
- You had no tax liability the prior year
- Your prior tax year covered a 12-month period
- You were a U.S. citizen or resident for the full year
Tax payments are due four times a year: April 15, June 17, September 16 and January 15.
Tax Tip #5: Stay Organized
One of the best things that you can do when it comes to paying your taxes is to stay organized. This is especially true if you're a military spouse who gets to PCS often. Keep all of your documents in individual folders based on the tax year. You'll want to organize all filed tax return documents and any 1099s and W2s for up to seven years after filing, too. Store it all in a fireproof box!
Tax Tip #6: A Note on Audits
Because of how many deductions and expenses self-employed business owners have, the chances of getting audited are a bit higher. The IRS can include up to the last three years of returns in an audit but may go back as far as six years for substantial errors. If you're nervous about this, work with a tax pro to alleviate some of that anxiety.
Final Tax Tip: Don't Forget Deductible Expenses
When return time comes around, don't forget to claim the benefits you get for being your own boss. These can range from gas mileage to books and supplies you've purchased for your business throughout the year.
Deductible expenses for side hustles/self-employment may include:
- Conferences
- The business portion of your home
- Tools and equipment
- Business mileage
- Tuition for related education
- Subscriptions paid
If you're confused as to what's deductible, you can always consult with a tax attorney or certified accountant. Many military installations also have free tax help, too!
Before April 15, take the time to look into the IRS website. Learn more on the government's official site about paying business taxes, especially if you're trying to pay taxes on small business income.
What do you do for a side hustle or for self-employment? Share with other military spouses and connect in the comments below!
-- Read the original article on Sandboxx.
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