Tuesday, August 14, 2012

5 Tax Tips IT Contractors Should Keep in Mind

Whether you are a freelancer, IT contractor or a small business owner, there are a number of things that you will need to keep in mind when it comes to preparing your taxes. Here are a few tips that should help you to ensure that you are ready for tax time.

1.       Know what is and is not claimable. This is one of the most important things to consider when preparing your taxes. Do a bit of research and speak with an accountant to determine what you can claim and what may cause raised eyebrows when your taxes are filed.
2.       Think about forming a limited company. If you are currently using an umbrella company, forming a limited company could save you significantly on your taxes and provide you with a higher take home pay as well. Forming your limited company will take very little time and management is not time consuming either.
3.       Avoid paying penalties. Filing on time is critical if you want to avoid paying tax penalties. Paying a fine may not sound like a major issue for larger corporations but for contractors or freelancers, this could cause quite a financial problem. Make sure that you are getting everything in when it should be in, a bit early is even better.
4.       Check to ensure that your accountant is experienced in offering contractor services. Managing contractor and/or freelancer tax issues can be difficult, particularly if your accountant has no prior experience. It is important that you select someone who has done this before, to ensure that you are getting the best tax advice and that your filing is done properly.
5.       Separate your business and personal accounts. Having a separate business and personal account is important. If you do have separate accounts you can move some of your business balance over to an account that yields a higher interest rate. There are several options available for savings accounts with high interest rates. Do a bit of research and see which bank offers the best yield. You can also cut down on your business expenses a bit of you choose a bank that does not charge for business accounts or if you keep enough in the account to qualify for a free account. Check with your bank to see what discounts may be available to you.

It makes good sense to keep up with your tax filings throughout the year. You should never wait until the very last minute to get these things together. Make sure that all of your business receipts and other documents are organized and easy for you to find when it does come time to file. You can save yourself and your accountant a lot of frustration and headaches by ensuring that you are completely ready for tax time when it approaches. Look into various tax advantages as well. There are a number of government schemes and other incentives that you may be able to take advantage of if you are a small business owner or contractor.

This article was written by Nixon Williams, offering accountancy services for IT contractors.

1 comment:

  1. There is some pretty sound tax legal advice. I can't stress enough how important number 3 is. Never underestimate those penalties.