We understand: Taxes are confusing, but the process is less complicated than you think! That is why we’ve compiled a list of steps to go over what you’ll need to file taxes and how to do it! You can read the full blog article here, or just keep scrolling.
Step 1: Gather All Your Income Information
When you file your taxes, you’re reporting your income, deductions, and a few details about your tax situation to the IRS. That’s why the very first step to filing your taxes is gathering information about your income.
Here are some documents you’ll want to make sure you have with you:
- Any W-2s or other income documents or reports that companies have sent you
Step 2: Collect All Your Deduction Information
As an independent contractor, you almost certainly had expenses throughout the year that were directly related to your job. If you paid for these business expenses, then you can deduct them from your business income in order to reduce the amount you pay taxes on. Put simply, this means you decrease your taxable income and end up ideally paying less in taxes!
When thinking about deductions, think about ordinary and necessary. Business expenses must be both ordinary (commonly accepted in your trade) and necessary (helpful and appropriate for your business). Common business deductions will include:
- Commissions and fees (such as the Uber booking and airport fees)
- Advertising (business cards, online ads, printing costs for flyers)
- Meals and entertainment (sharing a meal with a client)
- Office expenses
- A TON more
Here are some possible forms of documentation for your deductions:
- Expenses: Mileage logs, receipts with notes on them, invoices (for inventory purchased), phone bills, subscription payment confirmations, bank statements
- Asset Purchases: invoice for laptop, invoice for cell phone, a receipt for equipment
In order to claim your deductions, you need to have sufficient proof of each expense, as well as documentation on why (the “necessary” piece mentioned above) the expense was needed for your business. Your documentation will need to include:
- Amount of the expense
- Time and place of the expense
- Business purpose of the expense
- The name of the vendor for the expense
If you haven’t kept receipts, don’t worry, you can still deduct business expenses. You just have some extra work to do. You’ll want to make sure you can find proof of each business expense you deduct. Check out our guide here for a step-by-step explanation of what to do!
If you haven’t been tracking mileage either, don’t panic. You should definitely start tracking your mileage if you drive for work, but read here to learn how to find business mileage that you weren’t tracking.
Step 3: Choose A Filing Method
There are many tax filing options available to you, including online software, tax preparers, nonprofits that will file for you free of charge, and filling out forms by hand the old-fashioned way.
Which filing method is right for you?
Software. Tax filing software ranges in price and it is best to shop around. If you don’t have that complicated of a tax return (fewer sources of income and already have everything you need prepared), then software is a great option. Some software options include:
- H&R Block
- Credit Karma Tax
- TurboTax Self-Employed
Tax preparers and CPAs. If you have a complicated tax return and are willing to spend a little extra for a tax preparer or CPA, then you could hire a tax preparer. There are also a number of big box tax preparation companies that are a bit more cost effective than hiring an accountant. Example big box tax prep companies include:
- H&R Block
- Liberty Tax
Low income options. There are also a number of free tax preparation nonprofits that will help you at no charge, depending on your income. You can read more about some of these free programs here.
Step 4: File!
Now that you’ve gathered all the necessary information, you’re ready to file. If you’re using a tax preparer, you’ll just need to bring your documentation with you, and they’ll prepare most of your return for you.
If you’re using a filing software or are filing by hand, you’ll need to set aside about an hour to prepare your entire tax return.
Worried you’ll run into trouble when you’re filing your taxes? Try not to stress! You have a ton of resources available to you when it comes to filing with self-employment income.
Most tax filing softwares have great blogs and help centers that have answers to common questions about filing taxes. Check out H&R Block’s blog for a preview.