This article covers two sides of the same coin for independent consultants: how to set up your business for success and what expenses to track to pay less tax. They’re interrelated. Let’s tackle the tax question first.
What do I need to keep track of so I pay less tax?
Here’s a short list of the most important things and some tips to make it easier.
- Have a dedicated credit card that you use only for business expenses. Use this card for anything you can think of related to your business, such as parking, tolls, cell phone, internet, office supplies, etc. Even if you work from home, what would you normally buy if you were in an actual office? These business expenses will be deducted from your gross earnings to lower your taxable income. If you can, pay your health insurance with this same card since it too will be tax deductible.
Tip: Download the credit card’s year-end summary so you have a spending breakdown by category. Or you can download the transactions into a tool like Quicken each month and categorize the expenses there. (You’ll have to break them out by category on your tax return.) [Read more…]