Once upon a time and not too long ago, bad financial management used to only mean bad credit. Now, not managing your finances can cause many issues including loss of employment, bankruptcy, foreclosure, and even jail! More specifically, we've seen many celebrities fall victim to jail time for not paying their taxes. Ron Isley from the legendary R&B group the Isley Brothers spent 3 years in prison, while Wesley Snipes began his bid last year. Other celebrities in tax trouble include Lil Wayne, Snoop Dogg, Obie Trice, Method Man, Eve, DMX, Nas, Swizz Beatz, Doug E. Fresh, Mos Def, Beanie Sigel, Wyclef, MC Hammer, Lil Kim, Big Boi, Fat Joe, D12, Young Buck, Trick Daddy and the list goes on.
The main reason, we are seeing more people fall into tax troubles, is because new technology has made it easier for those who are self-employed to take their business matters into their own hands. While managing your own business matters may cut costs in the short run, if you are not well versed it may cost you more than just money. Whether you work 9-5 and have a side hustle or you are a full-blown entrepreneur, the following are tips that every self-employed person needs in order to keep themselves out of trouble with our dear old Uncle Sam.
1. Keep very good records: Most large companies rarely ever have issues with taxes because they hire accountants and financial officers to oversea most of their spending. Because you are a one-stop shop, it is important that you keep good records and save all receipts so that you can support your deductions.
2. Use your deductions wisely: Again, make sure that you are keeping your receipts for everything! Obviously, you should deduct anything that is used to conduct your business such as business travel, office supplies, postage and shipping costs, dues, subscriptions, and anything else business-related. Don't forget your office space; whether you have a separate office or use space in your home you are able to deduct either the rent you pay for your office space or a percentage of your rent or mortgage from your home relative to what you use for your business. You are also able to deduct child-care, phone bills, and utilities.
3. Defer income if necessary: Being self-employed gives you the flexibility as to how or when you pay yourself. If you notice that you are beginning to reach a higher tax bracket it is wise to hold off on paying yourself or adding income to your books.
4. Increase expenses if necessary: Just as you can choose to defer income, if you see that your income is high, you can make many more year-end business purchases to increase your deductions.
5. Get the right help: Not all tax experts are created equally. Make sure you ask for help from someone who has experience working with self-employed taxes!
6. File on time: The worst thing you can do is not report your taxes. Make sure you are filing your taxes on time and if for whatever reasons you need more time to file make sure you file an extension.