If you’re a self-employed physician or small business owner, then you know your taxes are more involved and complicated than when you work for someone else. There are more details to track, prepare and prove when it comes to tax time. So how do you cover your bases? Here are some tips to get your taxes ready, plus input from John McCarthy of McCarthy Tax Preparation.
1. Be Prepared for Estimated Payments
When you’re self-employed, you tend to have an annual income that can vary a lot. The IRS requires that everybody with an income not subject to withholding (small business owners included) make tax payments every quarter. So how do you pay taxes on an uncertain income? That’s where estimated tax payments come in – you pay taxes on what you’ve made so far per quarter, and you rectify any discrepancies at the end of the year.
2. Know Your Identity
You will also have to know how to file your company’s taxes. Are you a single owner or a partnership? Will you file a tax election as an S-corp?
“If you’re generating significant profit within the business, then it might make sense to get the guidance of a CPA with regards to which business entity to choose and if certain tax elections would be beneficial,” McCarthy says.
3. Track Your Deductions
Tracking your expenses is where many business owners get themselves into trouble. If you’re not keeping track of what you spend, you can miss out on deductions at tax time. Nonexistent or misfiled records can cause headaches in the event of an audit. Here are some examples of common deductions for businesses:
- Business insurance
- Professional fees (like lawyers and accountants)
- Rent expenses, mortgage payments, and utilities
- Wages paid to employees
- Office supplies
- Business-related travel
- Internet and technology expenses
You have to find a tracking system that works well for you. If you’re running a small business, a simple spreadsheet might be sufficient. More complicated invoicing and billing might be better with an accounting software like Quickbooks, Xero or Freshbooks. Simple scanning is a good option for keeping receipts, but make sure you have a well-organized filing system once you have them saved.
If you do any driving for work, don’t forget to track your mileage.
“If the IRS looks at your return and you don’t have a method of tracking it, the IRS will disallow it,” McCarthy says. “Tracking mileage doesn’t have to be difficult, there are plenty of low-cost apps like MileIQ, TripLog and Mileage Expense Log. You could also just keep a notebook in your car and jot down the date, beginning mileage, the ending mileage, and the business purpose of the trip.”
4. Deductions for a Self-Employed Physician
If you’re a doctor who is self-employed, there are additional deductions you should consider. According to McCarthy, these include:
- Any education or training (as long as your employer isn’t reimbursing you)
- License renewal
- Home Office
5. Setting Up for the Year Ahead
The best way to prepare for tax season is to make sure you don’t get behind. From the very beginning of the year, make sure you have an accounting system figured out so that you don’t get bogged down or miss deductions. Don’t forget to pay each of your quarterly estimated taxes. And finally, start thinking what retirement contributions you’re going to make.
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About Your Richest Life
At Your Richest Life, Katie Brewer, CFP®, believes you too should have access to financial resources and fee-only financial planning. For more information on the services offered, contact Katie today.