The big T is here and before you run away in horror like you just saw Slimer empty an entire buffet cart in his mouth, hear me out.
The biggest reason people put off getting prepped for their self-employed taxes is because they don’t know WHAT to prep or how. There are a million things they hear that they should be writing off, but they have no clear system for gathering this info. That gets stressful.
Which is why I wrote this survival guide. I want you to have everything you need to get your taxes filed. I want you to be able to focus on running your business instead of worrying about your taxes.
I want you to ride off into the sunset on a giant rainbow narwhal with a copy of your 1040 return rolled up and gloriously sheathed by your side.
Before we make that epic dream happen- I want to tell you about Panic Free Tax Prep, a 60-minute workshop that goes in-depth about everything you need to prep for your self-employed taxes so you can just start. Get it Here!
And now, back to the narwhal:
Step 1: Get Organized
The first step in prepping for your self-employed taxes is to simply get organized. Putting all your papers in one place and having a system will do wonders to curb the inevitable, “OMG where did all this official looking paperwork come from ?” panic that will set in.
Start by making a folder and put all tax-related mail you receive in it. As soon as you receive a piece of mail OPEN and REVIEW it. Sometimes people make mistakes when completing a 1099s and you want to catch any errors before it’s too late. Then, file it in your folder.
The most common documents self-employed people receive are:
1099s MISC (for service income, affiliate income, and rental income)
W2s (if you have employee income)
Interest income statements
Student loan interest statements
Next, make a folder on your computer called Taxes_YEAR and add any digital documents to this folder like:
1099s you receive via email
Copies of 1099s you file for contractors
Tax documents you download digitally
Tax-related reports that you run (more on this later)
Now you’re ready to rumble (and by rumble I mean do a bunch of other tax prep tasks).
Step 2: Prepare and review your Biz Docs
Getting your bookkeeping properly closed out for the previous year closed out is THE most important tax prep task you can do. This ensures that all your income is properly accounted for and that you aren’t missing any key deductions.
In other words, you save money and don’t accidentally incorrectly report your income on your taxes.
After your books are closed out, run a Profit & Loss report (also called an Income Statement) or review your category totals if you are using a spreadsheet. Look at each line on the report or your totals and ask yourself:
Does this make sense?
Should this number be higher?
Should this number be lower?
If anything stands out to you as being kinda weird, go back and review it and recategorized it.
Next, run a Profit & Loss Detail report and scan through all of your transactions to make sure everything is in the right place. This sounds like it would take forever but actually, it’s pretty fast. This process is really just a quick scan to see if anything jumps out at you as being wrong.
The final step is to re-run your updated Profit and Loss Standard and Detail and save this report in your tax folder so you can easily send it to your tax preparer.
Step 3: Total your mileage or car expenses
If you are taking the business use of automobile deduction there are a few things you need to have ready before you file your taxes.
If you are taking the standard mileage deduction here’s what you need to have on hand:
The total mileage you drove for the year
The total business mileage you drove for the year, with each trip logged with the following:
Total miles driven
Not sure what counts as business mileage? Here’s a breakdown of what you can write off:
Driving to client or worksite
Driving to business meeting or meal
Driving for business errands
Driving to and from the airport for business travel
Driving from your home to a temporary workplace
Driving between offices
What doesn’t count:
Driving from your home to your principal place of business (like you office)
The other way to write off your car is by writing off a percentage of the actual cost of your vehicle. The percentage is based on how much you use your car for business. Like the standard mileage reimbursement, you’ll need to know your total miles driven and the miles you drove for business, as well as the total you paid for:
Repairs and maintenance
The actual expense method is more complicated than the standard rate (and doesn’t necessarily mean you get a bigger write-off). If you are unsure where to start- go with the standard rate and ask your tax preparer what they recommend moving forward.
Step 4: Total your home office expenses
If you qualify for the home office deduction you def want to take the time to add up your costs- this deduction can save you a lot of dough!
If you do qualify, here’s what you’ll need to give to your tax preparer:
The square footage of your home office
The total square footage of your home
The total you spent that year on:
Rent or mortgage
Renters or homeowner’s insurance
Repairs and maintenance made to your entire home
Repairs and maintenance made to your just your home office
Step 5: Hunt for deductions
Now it’s time to put on your Indiana Jones hat and jacket and go deduction hunting! Deduction hunting helps you find the hidden deductions that ALWAYS fall through the cracks. Think of it like finding crumpled up dollar bills in the back of your closet.
Go through your personal statements and look for business expenses that accidentally ended up on your personal card. An easy way to do this is by downloading a spreadsheet of your expenses from the bank and quickly scanning through to see if you missed anything.
Don’t forget about expenses that are both business and personal. You can write off the business percentage of your:
Cell phone bill
In both of these cases, you can only write off your portion of the expense. So, if you’re on a family plan, first calculate your portion and then figure out the business percentage of that- that’s how much you can write off.
Step 6: Total your medical expenses
Self-employed people get to write off a portion of their health insurance if they (or their spouse) were not eligible for an employer-subsidized health plan (aka neither of you have an employee job that offers insurance).
In some cases, you can also write off your other medical expenses. The rules around this are tricky (there is math involved) so the best thing to do is to keep track of everything and let your tax preparer decide how you take the deductions.
Give your tax preparer the total that you paid in:
Health insurance premiums (health and dental)
Long-term care premiums
Co-pays and payments made to medical practitioners and facilities
Step 7: Check in with your tax preparer about what they need
At long last, you have everything you need to start filing your taxes (all safely tucked away in the folder you made in Step 1)!
The final step is to contact your tax preparer and check in to see if there is anything else they need from you. If so, gather that information.
If you don’t have a tax preparer yet but, after all this, you realize you want to hire one of these magical unicorn people- check out this article on how to find a bad ass CPA for your biz.
And don’t forget to register for my free (and pitch free) workshop: Panic Free Tax Prep for Self Employed Rockstars.
A replay will be available but only for those who register. Plus you’ll get The Tax Prep Powerpack- an awesome set of worksheets to help you stay organized in your tax prep.
Self Employed Tax Prep Cheat Sheet
Get your free Self Employed Tax Prep Cheat Sheet