Awareness of the tax laws surrounding contracting and self-employment is essential. The following are some tips for contractors and self-employed individuals that one should consider when doing their taxes:
Keep good records
When working on a construction project, contractors should keep accurate records of their work to ensure proper payment and filing of taxes. If you are confused about how to keep good records, see VW Taxation for more information. Moreover, follow the tips mentioned below for a better understanding:
- Keep a record of all your income and expenses.
- Keep records of all your business expenses.
- Keep records of all your tax deductions, including mileage driven in connection with employment-related activities, travel expenses for business purposes, and other miscellaneous deductions (such as charitable contributions).
- Keep receipts for purchases made on company credit cards or electronic funds transfer (EFT).
- Keep a written description of the goods purchased to prove them later if there’s an audit or dispute about what was bought with company money.
- Hire an accountant. You may not have a CPA or enrolled agent on your team, but you should still hire someone to help with taxes. Whether an accountant or a tax specialist, having someone who understands the process will reduce stress and make it easier for everyone involved.
- Bookkeepers are crucial to any organization since they maintain track of all transactions and payments, ensure accurate reporting to clients/customers, and track profits produced each quarter/year.
Understand the different types of business expenses
There are different types of business expenses you can deduct from your taxes. The most common types of business expenses are listed below. Further, you can see VW Taxation professionals for a more detailed understanding.
1. Rent or mortgage payments
If you’re in the construction or real estate industry, you may need to pay rent or mortgage payments at your home office. You can deduct these payments if they’re more than necessary to maintain your home and meet your living costs. However, remember that some utilities, such as electricity and water, may also be required for your business.
2. Employee wages
If you own a company that employs people, you’ll likely need to pay employee wages. You can deduct regular paychecks, overtime pay, benefits like health insurance and retirement contributions, and other costs related to hiring employees (like training fees). However, there are some limits on what you can claim.
3. Business equipment
If you own a business car or truck for work-related activities, you can deduct its depreciation costs (including the vehicle’s cost and any associated finance charges). Likewise, if you buy commercial property or software for your business, you can immediately expense these expenses.
4. Advertising and marketing costs
If your company spends money on advertising or marketing efforts to attract new customers or promote its products, you can deduct those costs as long as they’re reasonable.
Make estimated tax payments
Estimated tax payments are one of the essential parts of your construction business. It would help if you made them on time and in full, or you could face severe penalties.
There are two ways to make estimated tax payments:
Paying quarterly using EFT (Electronic Funds Transfer) is the fastest. Another option is to pay monthly with a bank or online banking providers like PayPal or Venmo. These techniques are more flexible than EFT, but remote access fees and interest rates may be greater than those charged by local banks in your state.
Remember, the government doesn’t care how much time you spend on your business. It just wants to ensure that you are paying the correct amount of taxes, and if they find out you’re not paying enough or too much, that could result in a penalty for both you and your company. Follow these tips to ensure that your finances are on track for success!