6 Common Small Business Tax Myths Debunked

by Agro Accounting CPA Accounting for Artists, Freelancers & Creative Com

Starting your own small business and working as a freelancer is helpful to get rid of boredom, stress, and a 9-5 job experience. But remember, you will have to buckle down in order to establish this new platform for yourself. In the beginning, you will have to multitask, managing various responsibilities of your business. One such important responsibility is accounting and tax preparation.

You will also have to understand and follow the guidelines of income tax services for the self-employed. But there are various misconceptions and myths related to doing taxes for small businesses. Let’s debunk a few of these common myths:

Myth 1: Taxes are the same for both employed and self-employed individuals

Companies extract taxes from employees’ pay and submit them to the government. Companies also pay half of their employees’ Social Security and Medicare taxes. So, employees have to pay less tax than small business owners. Freelancers and small business owners have to pay the full amount of Social Security and Medicare taxes.

Myth 2: Taxes are due annually

All self-employed individuals, which include small businesses and freelancers, are required to make quarterly tax payments. This applies to both federal and state taxes. Commonly, April 15, June 15, September 15 and January 15 (of the following year) are the due dates for estimated tax payments.

Myth 3: Don’t worry about taxes until the deadline

This is a common misconception, and the ideal way to handle it is to develop a tax management strategy. It will reduce the stress of taxes, ultimately making life easier for you. Timely payment of taxes is a good habit.

Myth 4: Working with international clients means paying twice the amount of taxes

Tax payments are owed to the government. If you are working and living in the U.S., you will pay taxes to the U.S. government. However, if your client is abroad, then you might have to pay taxes to their foreign country. Nevertheless, this foreign tax payment will be credited on your U.S. tax return in the form of a Foreign Tax Credit.

Myth 5: You don’t need to pay taxes for a side business

Many people start their side business along with their main work. It is commonly known as a “side hustle.” There is a criterion for tax payments in such cases. If you earn more than the standard deduction of approximately $12,000 every year, then you have to pay taxes on all your income.

Myth 6: The accountant is fully responsible for tax management

In a small business, an accountant is hired for only important tasks. You will have to pay more to the accountant for undertaking extra services. In startups, an accountant, in simple English, is just responsible “for paperwork.” You will have to handle all other tasks like collecting receipts, reporting earnings, and providing your accountant with the right information for the paperwork filing. Your accountant is not liable for your every problem regarding tax management.

Tax planning for freelancers and small businesses is already complicated, in the beginning. Don’t let these myths make it even more confusing for you. Learn the truth about these tax myths, and make payments on time. If you are stuck in a financial situation, take the help of financial experts and accountants immediately. Tax preparation is equally as important to a small business or freelancer as it is to an established business.