Are you making any of these biggest mistakes when it comes to filing taxes? Read on to learn how to recognize the biggest mistakes, and, more importantly, learn how to solve them quickly.
You are reporting with the wrong method.
One of realtors’ biggest mistakes is not reporting on a cash basis. By reporting on a cash basis, or only paying taxes on the income you receive during the year, you’ll minimize your overall tax bill.
If you’re not paying on a cash basis, you run the risk of paying taxes on income you haven’t actually received yet, such as commissions in escrow. Choosing to pay taxes on income you currently have in your bank account usually equates to a smaller overall tax bill, thus the best option for realtors.
You mix your personal and business accounts.
It’s easy to quickly become overwhelmed by tracking business expenses and payments. If you don’t have a separate, dedicated business account and credit/debit card, this process becomes even more confusing. Having separate accounts from the start is the best way to keep accurate records of your spending and income. Establishing a bank account just for your business is fairly straightforward and many banks and credit cards even have cash-back and point reward systems that actually help you earn while you spend.
You don’t keep track of business expenses.
While the first step to keeping track of your business expenses is by separating your personal and business accounts, it doesn’t end there. Creating a clear filing system for all receipts and business expenses, including mileage, will prepare you to make the most of your deductions. Don’t leave all your bookkeeping until filing season!
You aren’t prepared for self-employment taxes.
The most common issue realtors face during tax season is not having prepared for self-employment taxes. When filing as an independent contractor, you’re responsible for your own self-employment taxes which include Medicare and Social Security. An important caveat: these percentages are higher than you’re used to as a traditional employee, so you should set aside enough money in advance in preparation for these taxes.
Not hiring a professional.
You already have a lot to worry about on a daily basis as a realtor. Adding the extra hassle of dealing with taxes and filing is often a headache many business owners aren’t adequately prepared for. If you’re confused about the filing process, or you want to make sure your taxes are done right the first time, hiring a professional is the easiest way to take the headache out of filing your own taxes. Remember, the cost of hiring a tax advisor is usually considered a deduction, so it pays to be prepared.
Don’t make these mistakes yourself!
There are many easy mistakes to make when filing your taxes, so make sure to protect yourself this upcoming season! It’s important to be proactive about your taxes and to always maintain clear and accurate records. When in doubt, speak to a professional about your filing options and how to best proceed with your finances.