Common Income Tax Filing Mistakes That Artists and Freelancers Makeby Agro Accounting CPA Accounting for Artists, Freelancers & Creative Com
Preparing income tax returns for artists and freelancers is a challenging task. There are multiple sources of income, a range of deductions, and so on. On top of that, artists and freelancers have to file estimated quarterly taxes at all levels of government—federal, state, and local. Just to give you some basic information, the IRS classifies freelancers and artists as self-employed people. The tax due dates are April 15, June 15, September 15, and January 15. Thus, there is a lot of room for mistakes, and the need to hire income tax services for the self-employed becomes greater. Have a look at the five tax filing mistakes that artists and freelancers commonly make.
1. Underreporting estimated income
This is the most common mistake made by artists and freelancers. Freelancers need to calculate a quarterly tax amount based on their estimated tax for the entire year. It is hard to predict how a business will fare over the year. Thus, they can easily misreport annual income.
2. Errors in calculating deductions
Mistakes in calculating deductions are quite common due to the complexities involved. This impacts your net income, which can grab the attention of the IRS - as it may seem like you are doing it all intentionally to lower your taxable income, even if you are not.
3. Mixing personal and business expenses
It is quite easy to mix your personal and business expenses. So, you need to ensure that you are only writing off the business part of your expenses when writing off expenses. For example, if you have set up a home office, then you can only write off that portion of your utility bills incurred for business activities. Writing off expenses incurred for personal use can raise a red flag. That’s why artists often prefer hiring income tax services for the self-employed to prepare their income tax returns.
4. Poor record-keeping
It is very important to understand that the IRS can seek an explanation of any business expense that you write off on your tax return. So you need to keep records of your business expenses. Also, if you do not keep records and try to calculate everything at the last minute, then there is a chance that you will miss out on important deductions you could take.
5. Not filing taxes on time
While doing company income taxes for artists, the probability of facing penalties increases four times since you have to pay quarterly estimated taxes. In fact, this probability could be greater than four times as you have to pay taxes at all levels of government—federal, state, and local. Many freelancers often fail to file their taxes by the due date.
Created on Jan 6th 2022 05:01. Viewed 134 times.