⏳Tax filing window for 2023 is now open. Last Date: April 16 ⏰
When working as a self-employed individual, the responsibilities are high and never-ending. And no matter how organized you try to be, receipts always find a way to pile up. This can make paying 1099 tax a nightmare when trying to sort through your records to find a business lunch receipt from 4 months ago.
So how can you avoid this? You need all your receipts to claim tax deductions when paying freelance income tax. However, it’s no longer essential that you keep these receipts in paper form.
Let’s go straight to the source. What does the IRS have to say about paper records? Well, they now actually allow businesses to keep records electronically rather than save a bunch of paper receipts.
If you’re keeping receipts to claim certain self-employment tax deductions, make sure it has a record showing what you bought, how much it cost, the date of purchase and the purpose. If the receipt isn’t clear, you can always add the relevant information to the receipt.
The same applies to any business meals you want to write off. Just show the IRS who you dined with, where you met, what the purpose of the meeting was and how much the meal cost (with tip), and you can claim that 50% business meal deduction with no problem. If you’re having trouble finding deductions for your line of work, you can use a business write-off calculator to help.
The IRS doesn’t need you to save receipts in paper form. So how should self-employed individuals keep their records? The easiest way to do it is to keep electronic copies.
You could have a separate, encrypted hard drive or a cloud storage system where you can scan or photograph your tax documents and keep them safely in labeled folders. You can also use a tax accounting software. Keeping tax records for up to three years is generally a good idea, although the number may be higher in certain cases.
The IRS will accept electronic documents as proof if you get audited. Even if you somehow lost a receipt, showing them your bank or credit card statements will be enough. Or, you can also show them any relevant emails.
Remember that bank and/or credit statements will be enough proof if you get audited, but they are not a substitute for claiming tax deductions when you file your returns.
It’s no secret that independent contractors have a lot of taxes to pay. There’s the SE tax, federal income tax and sometimes even state tax. The tax burden on independent contractors is a significant aspect of their financial responsibilities. This requires a lot of documents and, inevitably, a lot of stress around tax season.
The Self-Employment (SE) tax, set at 15.3% of earned income, covers both Social Security and Medicare taxes. Unlike W-2 employees who split these taxes with their employers, independent contractors are responsible for paying the full amount themselves.
1099 workers also have estimated tax payments to cover their federal income tax liability throughout the year. This means working on income projections and estimating tax liability, which can be overwhelming. Having an estimated tax calculator do this for you can be so much easier.
Along with federal taxes, independent contractors may also have to pay state taxes, depending on the state they reside in or where they conduct business. Clearly, the tax process for independent contractors requires meticulous record-keeping and organization.
To file taxes as a 1099 worker, you need to keep track of your income, expenses, invoices and bank statements. Doing this ensures you have everything you need to take advantage of every tax break, file accurate returns and avoid penalty fees.
If you're just starting out as a self-employed individual or find that you’re too busy to keep track of your expenses, you can use an online tax accounting software (like FlyFin) to do the work for you. Or you can reach out to a tax professional to help you manage your finances.
FlyFin CPA Team
With a combined 150 years of experience, FlyFin's CPA tax team includes tax CPAs, IRS Enrolled Agents and other tax professionals, offering users the most comprehensive tax advice and preparation.