Saving for taxes can be quite a tedious balance.
Too little in savings and we’re scrambling to come up with the money for our payment, while too much in savings is capital we could have used for other projects. Furthermore, knowing how to expense as a self-employed individual is something a lot of people miss the full value they could capture, leaving them overpaying on taxes for certain expenses they’re incurring regardless.
When factoring in Covid-19, learning how to save for your 2020 taxes in Virginia can be quite the doozy, which is why we’ve broken everything down step-by-step. Check them out below:
Have you been self employed before?
The easiest way to gauge how much to save is by looking at your previous years’ self-employment taxes, which will provide the most accurate depiction of your expenses (depending on your occupation).
If you haven’t been self-employed before, then no sweat. For most, the starting point for write-offs are already expenses you’re incurring anyways, such as your cell phone, (a portion of) rent, and meals with potential clients. As one of the benefits of self-employment is writing off basic necessities, this is usually where people start to see a difference (unless the standard deduction is more than your individualized expenses).
How expensive is your business?
Gauging how expensive it is to run your business starts with average expenses. Essentially, anything you pay for that serves a clear function of conducting your business in the eyes of the IRS doesn’t count against your income. For example, your cell phone bill is a necessity, as well as the square footage of your apartment that your workspace occupies (not the entirety of your rent, unfortunately). Running through a list of write-offs will help gauge what type of cash flow your business has, as well as what your income genuinely looks like to the IRS.