This year I paid around $300 to have my income taxes prepared professionally.
Usually I pay around $20 to file them online all by myself.
Do you think I’m going to regret paying an extra $280 more? Maybe … if I was penny wise but pound foolish.
If you’re a blogger who earns an income, a freelancer, or make any kind of money on the side, then you should listen up and think about if you’re really qualified to handle your own side business taxes.
As it turns out – that could be an assumption that costs you thousands down the road.
Handling My Own Blog Side Business Taxes:
I’ll be honest – I’ve never really felt too good about preparing my own “business income” taxes.
The personal / individual taxes don’t really bother me. Those have been mostly pretty straightforward (even though short-term/long-term capital gains from stocks can start to get messy).
If you make any significant amount of money on the side, then technically you’re running a “business”.
And in 2013, business was booming! This was the year that I really started to treat my blogging hobby more like a money making business, and the results really showed! By the end of year I had over $10,000 in profits.
I am well aware that there will always be things that pop up and could hinder my business, but my tax situation will never be one of them because of the commitment that I have made to having the done right.
How Do You Know You’re Doing Everything You Can?
Let’s assume a 25% tax bracket. That means I would owe the IRS around $2,500 in unpaid taxes.
Is that really what I owe? Am I really doing everything I should be to keep my earnings?
To be honest – I don’t know!
I know that expenses help decrease my taxable balance. I know that opening a SEP IRA account helps too. But what else is there?
Despite the sticker shock of working with a professional accountant, I decided that the possible benefits of using a tax professional out-weighed the expense. I had put this off long enough.
No more reading advice from blogs and websites online and then trying to piece it together myself. I wanted to work with someone who actually knows what they’re doing.
So do you want to know what you get for your money?
Advice on Expenses:
As a small business owner (even if you only made $100 in income), one of the first things you have to realize are that side business taxes can be offset by the expenses involved to keep your business running.
In other words, from a tax perspective:
-> the more money it costs to operate your business,
->the less profits you make
-> and the less taxes you’ll have to pay (since you only pay taxes on profits, not revenue)
Now obviously the IRS is not going to let you deduct everything under the sun as a write-off to your business. But as a blogger did you know that you could deduct:
- Your domain and hosting fees?
- Virtual assistant or freelancing fees?
- Expenses (like Paypal fees) or commissions paid to those who helped bring in revenue?
- A portion of your Internet provider costs?
- Travel that was for business?
- A portion of your new computer, cell phone bill, or home office if you use it for your business?
- Lots of others
Unsure about any of these? Again – you should be! Claim too many of them and the IRS will be out to audit you.
This is where a tax professional who is working on your refund can help ease your mind. They’ve probably done this a thousand times and can help you decide which things should make the list and which ones shouldn’t.
Let’s say they were able to find $200 extra in expenses that you hadn’t thought of. That will save your side income business around $50 in taxes.
Contributing to a SEP IRA:
This was my MAIN reason for working with a tax professional this year. Like I wrote about in this post here, I had discovered the tax loop hole of a SEP IRA and wanted to take full advantage of it to really offset my taxable income as well as stash away even MORE money for retirement.
Fortunately my accountant knew all about this and was easily able to help me crunch how much I’d be able to put aside. Together we determined that I was able to save approximately $2,100 in a SEP IRA for 2013. If I hadn’t done anything and simply paid the taxes on that $2,100, I would have ended up paying almost $525 more in taxes than I had too.
Federal Withholding Penalty:
Another big land-mine he helped me to avoid: Adjustments to my Federal withholding!
It’s awesome that I made so much extra money, but unfortunately that was pretty close to getting dinged with a penalty for not having enough paid into the IRS for the year.
In case you didn’t know, if you pay too little into the IRS throughout the year for income you earned, you can get hit with a penalty. That’s the IRS’s way of making sure that they get access to your money right away!
The IRS has a calculator for estimating federal withholding in case you want to check it out for yourself. Based on what we came up with, my work income plus free-lance income indicated that we would either need to 1) increase my Federal withholding on our paychecks or 2) making periodic payments to the IRS directly.
Either way I’m going to do something so that I can side-step having to pay unnecessary penalty fees all because I’m making a side income.
Advice for Life:
This is probably the greatest aspect of all. Ever since I started blogging and really digging deep into personal finance, I have learned a TON about taxes and how they work. In some instances I’ve even proven how picking the path with your taxes could result in losing over a million dollars over your lifetime. So taxes are nothing to be taken lightly!
But now that I have working relationship with a tax professional I’ve got someone to turn to when I want to know the real deal. Again, no more trying to interpret blog articles and think I’ve got the right answer. If there’s ever anything I want to know specifically about my side business taxes I’ll know right who to ask.
Readers – How many of you have turned to a pro to help you with your blog or side business taxes? What benefits or value do you feel they bring you?
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