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If you’re in business for yourself or are a contractor
More and more companies are now hiring people as contractors rather than as permanent employees. If you fall into this category or are self-employed, here are five suggestions for how you could be reducing 2013 taxes.
Keep important documents
First, make sure you have and keep important documents. If not, this could lead to substantial penalties in the event that you are audited. The smart phone app Expensify can be a real help if you need to track expenses such as mileage. For that matter, there are experts who say that many of us decrease our refunds or increase our tax liability just because we didn't keep good accounting records. What happens at tax time is that we end up making wild guesses on the amounts that we spent for things that now qualify as deductions. And making guesses like this can increase our taxes substantially.
Keep a good filing system
If you want to take full advantage of your available deductions, you need to have a good filing system. It doesn't have to be anything fancy. It just needs to be something that you’re comfortable with. One good option is Mint.com. It's free and available for use on all types of smartphones and PCs. You can use Mint to track expenses, create a budget and even to keep track of your credit card and personal loan debts and your investments.
It’s possible you could also benefit from using sites such as Outright.com. It's an online bookkeeping system that can help you categorize your tax-deductible expenses on the fly and create customized reports.
Review your bank statements
It's also a good idea to review your bank statements either monthly or bimonthly. You should go through every line of your statements and highlight those expenses you believe to be tax deductible. You could then scan those statements and have them filed on your computer for easy access when tax time rolls around.
To see how much you might owe
There are two online sites that include a withholding calculator where with a few clicks you can get an idea as to how much you will owe in taxes for 2013. These are IRS.gov and Bankrate.com. Both of these sites have calculators that can help you estimate what your tax liability will be for the year. In fact, either can help you determine whether you can expect a refund or whether you will owe the government.
Do you pay estimated taxes?
If you work as a contractor or are self-employed you may want to pay estimated taxes. I learned my lesson this year and we are now paying estimated taxes each quarter. This is especially true if you are a sole proprietor and if you believe you have a tax liability of more than $1000 for 2013 or if you have a tax liability left over from the prior year. The form that you will want to use is Form 1040-ES Estimated Tax For Individuals. I can tell you from personal experience that this is not an easy form to work through but it can help you decide whether or not you need to pay estimated taxes. If you do not pay your estimated taxes, you may be subject to certain penalties because you underestimated your tax liability.