As the tax season quickly approaches, owner-operators need to take some time to review the tax laws and strategize about the ways you can lower your tax bill this season. Below are some tax tips for owner-operators, from tax forms to tax credits.
Owner-Operator Tax Tips
Tax season can be stressful, but owner-operators can make the process much smoother with some preparation. Keeping track of your expenses and filing self-employment tax returns, you can reduce your tax liability which means you can get the most out of tax refunds and pay less.
Below are some tax tips to keep in mind this tax season
Keep business expenses separate from personal expenses
Owner-operators should keep records of business expenses separate from personal expenses to claim tax deductions on business expenses. Not keeping these documents separate could jeopardize tax refunds and cause tax audits, which could lead to additional fines and fees. This also includes keeping records of parking fees, tolls, cell phone usage, vehicle repairs and maintenance costs, fuel, office supplies related to your business, etc.
File self-employment taxes independently
Another tax tip for owner-operators is to file your self-employment taxes, which add to your regular tax return. Filing tax forms by the cut-off date – which for 2021 is May 17th will keep tax refunds from being delayed.
Know tax credits available to owner-operators
Tax credits differ from tax deductions. Tax credits reduce the amount of taxes owed, while tax deductions reduce taxable income. Some tax credits available to owner-operators include
Fuel tax credit
Vehicle acquisition tax credit
General business tax credit
Other tax concerns
There are other tax concerns to consider, such as if you should hire an accountant, what filing status you should use, or how much money you should put back for taxes. When paying taxes, you should pay quarterly, and if you have not been paying quarterly, you may need to make larger payments.
As an owner-operator you have a few different options to choose from when reporting your income. You can use your own records, however, if you have worked as an independent contractor, you will receive the Form 1099. This is used for the miscellaneous income.
When it comes to setting aside money for your taxes, many tax experts suggest that you set aside 25% - 30% of your quarterly net earnings. This way you have enough to pay our taxes, and you may even have a little left over.
Owner-operators need to review important tax code changes and plan out how to lower their tax bill. The bottom line is – tax season is coming up – and it can be stressful. However, if you are prepared, you won’t miss any deductions or credits.