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What should independent contractors know about taxes?

If you freelance in New York, you already know that your tax preparations will be different from those who work for employers. They get a portion of their income deducted from their paychecks automatically, so they hardly have to think about taxes until it’s time to file. However, the rules are quite different if you work for yourself. It is crucial that you don’t put off thinking about taxes until the last minute or you could end up with a large tax bill and no easy way to pay it.

The Wall Street Journal points out that tax preparation for freelancers can be simple with some careful planning year-round. The most important step is to set aside funds for your taxes, in the same way your employer would do with your paychecks. Tax advisors recommend putting 30 to 40 percent of your income into an account that’s separate from your personal bank accounts. To keep from spending the money, make sure you don’t have easy access to debit cards related to the account; in fact, it may be best to pretend the money isn’t there until it’s time to pay the IRS.

There are several other things you can do as an independent contractor to reduce the impact taxes have on your wallet. You can take advantage of business deductions, such as travel expenses, meals, phones, computers and a portion of your mortgage and utilities if you have a home office. It can help to separate the items you use for your business from your personal items if you work at home – for example, having a laptop you use solely for work and a business-only phone line. You will also want to save all your business-related receipts and keep track of your expenses.

Being your own boss can be rewarding but also challenging when it comes to tax time, unless you are prepared. You should understand that this blog is only meant for informational purposes and should not be taken as legal advice.

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