3 Financial Mistakes to Avoid if You're Self-Employed

ST. LOUIS, March 5 /PRNewswire/ -- Financial blog ChristianPF.com released an article discussing 3 mistakes that self-employed workers commonly make. The article continues by pointing out a few of the common mistakes and solutions for them. 

An excerpt from the article...

It seems there are more and more people becoming self employed these days – or at the very least, many folks are starting a side business, turning a hobby into some extra income or doing some type of independent contractor work. Whether you've decided to turn your blog into a business, sell a multi-level marketing product, or rent a storefront to start selling your homemade jewelry, there are some mistakes you will definitely want to avoid.

Not Setting Aside Money for Taxes

This seems simple enough, but is probably one of the biggest tax mistakes people make  among others. The number of people I talk to that haven't set aside money for taxes is pretty high. If you are a 1099 contractor, the company you are contracted with does not pull out taxes for you.

At first, this feels great because your paycheck is higher – then reality sets in when it's time to file your taxes. Uncle Sam requires you to make quarterly estimated tax payments. If you don't have enough paid in for your estimated taxes you could face some penalties. 

Another thing people fail to realize is the self-employment tax that's due. This was a stiff kick in the gut to me after my first year of self-employment. Uncle Sam charges 15.3% tax for self-employed in addition to your regular income tax! This is equivalent to the FICA tax on a regular paycheck. The good news is that you can deduct half of your self-employment tax, but you still have to pay!

What I do to help me throughout the year is any time I get paid, I set aside 20% of my money right away into a separate bank account, which is labeled Uncle Sam's. Then each quarter I take that money and make a quarterly estimated tax payment.

Not Keeping Track of Income and Expenses

This is one of those mundane tasks that most owners hate, but every business must do in order to maximize deductions as well as protect themselves from an IRS audit. A business owner should really be organized when it comes to keeping track of income and expenses. Don't write down your mileage on a napkin each time you travel. Your bookkeeper will thank you for that. Or, if you are acting as bookkeeper you'll appreciate your organization as your business grows.

Get a notebook, use a spreadsheet or some budgeting or personal finance software to track the amount of your expenses, the category (i.e. office supplies) and a brief explanation of what you purchased etc. 

Don't rely on your memory to come through for you when you need to report an expense. Keep your receipts, develop a system and keep up to date.

I typically store all my receipts in one place for the week and then each Friday I pay bills, track my expenses in a spreadsheet, review my income and take a look at profit and loss statements.

This may be a bit much depending on what type of business you are in, so just be sure you come up with a system that works for you. Avoiding these mistakes as a self-employed person will help free up time, save you money and protect your business so you can maintain a long and profitable career.

Read the full article: http://www.christianpf.com/3-mistakes-to-avoid-if-youre-self-employed/

SOURCE ChristianPF.com