Being self-employed is advantageous as you can work in your own time without adhering to anyone's deadlines or commands. You can create your daily work schedule and plan things accordingly. You can take a break whenever you feel you are overwhelmed with work. It sounds fun and amazing at the same moment to build up to something all by yourself but self-employment comes at a certain price.
You have to work hard to make that happen whatever business plan you have thought of and that might be more overwhelming than the time when you might have been working as an employee in an office. Other than that there are chances of a financial crisis initially until your business or idea takes off.
You have to bear the stress of workers, manufacturers, on-time deliveries, taxes, and much more. Among all these tax is one of the most stress-creating factors. So here are some ways through which you can avoid tax penalties and make your tax processing easier.
* Register for GST
GST stands for goods and service tax. It is a requirement even when you opt for self-employment. As soon as you launch a business it is necessary to register for GST. Even though GST is compulsory then also you need to know under what conditions and circumstances GST is payable and how much GST is supposed to be paid depending on the region you came from. Generally, it requires consumers to pay 7 to 12% of GST for products consumers buy, still, it is always a better option to confirm from the accountant in detail about GST. If you are new to the business, no matter whether your business is running smooth or not don't ignore registering for GST otherwise you might experience adverse unwanted situations.
* Strictly Avoid Underpaying Taxes
One of the main reasons that entrepreneurs and other categories of self-employed people get entangled in the loop of the tax penalty is the underpayment of tax.
It is of utmost importance to pay the tax without any negotiation or excuse as otherwise, it would come with severe unavoidable consequences like getting charged for underpaying taxes which would then make you pay more than the required amount to get out of that mess.
To avoid underpayment of taxes you can pay 90% of the tax that you own in a given year and pay 100% of tax liability the year before that this would exempt you from any unwanted risk.
Read more about common tax return mistakes.
* Use Separate Accounts For Business Expenses
Opening a separate account for your business would be helpful as it will solve the financial queries regarding business a lot more easily. So opt for opening an account for business expenses only. In this way, you can work on any discrepancy and tax issues when required.
* Don't run away from a tax obligation
It is never ideal to agree to the idea of awaiting the pending tax payment and consider paying the tax penalty instead. Do not settle for this idea as it drains your money unnecessarily. It also leaves an impact on your business reputation.
Rather than avoiding paying the tax on time be fierce and face the reality that it is essential to pay the tax someday or the other so why not pay it on time instead of stretching it more and paying an extra penny in the form of a penalty, this might save few dollars in your savings account if you pay the tax on time.
* Deduct Self-Employment Tax
If your self employed hen you are eligible to make deductions on your tax payment. However, this is only available when you have to pay a specific amount of tax. Be mindful of these deductions. These deductions can help you to avoid penalties.
Two of the most common deductions are used in medical and social security which are also counted under self-employment tax. Making mindful deductions would help you escape the chances of paying penalty thus saving up some bucks. If you are unsure about the tax deductions for which you are eligible you can opt to hire an accountant for company tax returns which would be a lot beneficial for you.
* Learn to figure out how much tax you owe
It is essential to know how much tax you are supposed to pay with or without the help of a lawyer. You can inspect your accurate income and deductions that would help in determining your tax calculation. some of the items like your previous year's return as the amount which is more or less the same and your record of any tax payment which you have paid this year would help you to determine tax calculations with certainty.
* Keep a running tally of your income
It is no secret that you would be left with immense shock at the end of the year if you don't keep a running tally of your income and pay your estimated tax according to that. Checking upon your income at the end of each quarter would help you to determine about tax expenditure whether to increase or decrease the amount which is paid quarterly. Further, if you use that account for your business-related deposits then I would take only a couple of minutes to check your running tally in your bank account.
* Always overestimate
Tax penalties are pricey most of the time which also depends upon the amount of due amount which is pending. Generally, around 0.5% ofthe fine is imposed in addition to the pending tax amount per month for falling short and not paying the tax on time. Other than this interest is charged which is calculated from the start of the quarter payment and is continued until the day the tax is paid finally.
The bottom line is that if you are self-employed then you are already overloaded with a lot of responsibilities as mentioned earlier but irrespective of that you have to be very careful with the calculation of tax and take required measures to avoid tax penalties. If you follow the steps discussed above then you will be able to bring many positive changes in your tax deductions. Hiring a tax advisor can also be beneficial in this situation.