It may seem far off now, but tax season will be here before you know it – and if you run a small business, you need to start preparing now. Unlike those employed at standard nine-to-five jobs, entrepreneurs and contractors have to wrangle complicated tax calculations that can take weeks to sort out. You’ll need to get a head start.
It’s time to get out your bank statements, tax forms, and personal records and figure out what you owe, and be careful not to miss these four hidden earnings factors.
Tax Tricks: Financial Factors You May Overlook
There’s no such thing as a free lunch or an untaxed dollar, so don’t be fooled.
The Down Low On Digital Services
Blogs, online shops, and even advertising and affiliate services all tend to generate income – but is it enough to be considered taxable? This is a question that small businesses and freelancers need to stop asking; if it generates income, it’s taxable income. That means if you offer automated consulting webinars that are generating income or making money (even in non-USD), you need to pay taxes on that money. Make sure you’re keeping careful track of any such income.
No Free Trips
Next on the list of oft-overlooked income sources: business trips. But not the trips you take to a conference or to meet with a client in another city. We mean the trips that a client company pays for, where they cover the flight and hotel costs in an attempt to get something in return.
These aren’t free trips. Keep that in mind as you asses all these tax tricks. They’re gifts and you have to treat them as income, so make sure you find out what these trips are worth so you can note them accurately on your taxes.
The Gift Economy
Much like trips, in the business world, people rarely give you something for nothing. Sure, a happy client might send you a fruit basket, but as a baseline, anything worth $25 or more needs to be looked at more closely, even though when gifting, employees can only be reimbursed up to $25 for the cost of a gift.
If you’re not sure about an item, such as something you were handed in a convention hall as swag, one way to determine whether you need to deduct the item as income is by looking at whether or not you forged a business relationship with the giver. Were you given the same thing as everyone else, or did the giver spot a potential opportunity and give you more or bigger items? If there was an expectation of reciprocation – even if it didn’t occur – the item should be counted as income.
Assess items as they come to you and document all income, as you won’t be able to remember everything you picked up at conventions in the last year come tax season.
No 1099, No Problem
If you do a one-time job for a company, say you write a guest blog and you’re paid for it, but they don’t give you a 1099 tax form, does that mean that isn’t taxable income? No, it’s not that easy. Even jobs that don’t come with a 1099 or other tax form attached to them constitute taxable income and you have to claim this money, so make sure you’re keeping track of any such income.
Of course, there are more hidden income sources than just these four, but the fact that there are any means that hopefully, you’ve been putting aside a portion of your income each month to pay your taxes when they come due.
So gather up all the standard paperwork, plus the careful documentation you’ve been keeping all year, and head to your trusty accountant. And then, when all is said and done, hold on to those papers a little longer, in case your tax return is audited. You don’t want to be caught unprepared.