How to fix your Self Employment Tax Problems in 6 steps
Being self-employed is tough enough! You are managing your business and juggling your personal life. Having tax problems on top of that can incredibly complicate your life. Here is how you can fix your tax problems when you are self employed.
Are you self-employed and got yourself into some tax trouble with the IRS? Your case is handled a bit differently than somebody that's a wage earner. I'm going to break down the steps of what you need to do in order to get back in compliance with IRS, and get out of your tax troubles.
So I could only imagine. You're self-employed and you're struggling with work, life, family balances, you're out there handling clients and doing the work itself, whatever type of self-employed work you do. Whether you're a real estate agent, a mortgage broker, a driver, a truck driver, Uber, Lyft, you name it. You're a freelancer, you're independent. And getting into IRS tax trouble was probably the last thing you'd expect. But now you're here trying to figure it all out.
We have a lot of self-employed individuals here as clients separate tax relief that we've worked hard to get them out of trouble and they have remained out of trouble because they followed these basic steps. So I'm going to go ahead and lay them out.
#01: Business vs Personal
Your monthly dipsoable income is too high, and you do not qualify
The first thing it goes down to maybe regular business 101. You would want to keep everything separate that's business related with the personal. So this includes your checking account, your credit cards, anything that's business related, keep it separate from the personal, and if it's something you have not done in the past now is the time to do it. Now is the time to go ahead and separate that. This will protect you for two different things. One, God forbid, if an audit occurs with the IRS, you could easily see what was business, and what was personal.
#2 Business Records
Accounting & Bookkeeping System
The second thing is you would want to keep good records and record keeping for your business. So this second step ties in with step number one, with keeping everything separate. So with the business, all income, you want to report all business income. Maybe using certain checking accounts. Also, you would want to record your expenses with certain credit cards, certain checks, or certain checking accounts.
These records need to be put in some kind of system. Now, if you're just kind of starting off, you have maybe not that many problems, then using some kind of Excel sheet is still better than nothing, but the best thing hands down is to have an accounting system. Whether it's QuickBooks Zero, or have a professional bookkeeper to maintain your books.
#03 Tax Filing Compliance
The third thing is tax filings. If you have not filed past year's taxes, and you need caught up, you have to catch yourself on up.
And if you've already done that, then you could go ahead and skip to the next step. But the way we would handle missing tax filings for somebody that's self-employed is we would gather your records through the wage and income transcripts from the IRS, get your profit and loss. And get you all caught up in filings.
#04 Quarterly Estimated Tax Payments
Compliance includes your Estimated Tax Payments
The fourth thing I would want to introduce is something called compliance. And part of compliance is you have to be making estimated tax payments. The reason being is because the major difference between you that you're self-employed and somebody that has a W2 job is that there's no taxes taken out throughout the year. So, the first times you are making estimated tax payments, it's based upon how you last filed. And the brand new cycle begins with you making these estimated tax payments.
The first year might be a little differently because if it's your first year in business, there's not an exact amount that you may know of what to pay. But if you maintain a good profit and loss, good records, you might have a rough estimate of how much deposits you should be making to the IRS. And these quarterly estimated payments begin on a new cycle every time you file your tax return. For example, in 2023 the very first estimated payment is due April 15th, 2023. The following one is going to be due June 15th, the third one September 15th, and then the following one is due the following January, 2024.
#05 IRS TAX DEBT REVIEW
The fifth thing now is to go ahead and address all of your tax balances with the IRS. And it also could be common, if you have balances before getting caught up in filings, you may have new, additional balances based on how you filed the tax returns. And now is the time to address that. And for IRS tax relief, the IRS considers now your family size and your personal expenses, along with your business expenses in order to put forth a solution on your tax debt.
when you're self-employed, your tax debt is treated as a personal tax debt with the IRS. It is not treated as a whole separate debt.
#06 REVIEW ALL TAX RELIEF OPTIONS
The sixth and final step, which means that even though you're self-employed, once again, you're going to qualify for all the programs that a regular wage earner would, which includes:
Offer in Compromise program
Hardship: non collectable status
Partial Payment Plan: Hardship Payments
or any other solution available to you ( Penalty Abatement, Innocent Spouse, Appeals Program)
Need help evaluating your IRS Tax Relief options? We can help! We can review your situation, and see what is the best tax relief solution for you.
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