The new year has come and gone (thank goodness) and the winters end is in sight. For many of us business owners the next thing on the list of major events is tax day.
Many birth pros get a little lost in their tax prep. The good news is there are many tax tips for 2021 that can help you save both time and money.
Tip #1 Get Organized
You want to make sure you have all your receipts and other documents in order as soon as possible so you don’t have to go searching once you have started your return. This includes invoices and receipts from your business.
Tip #2 Deductions are Your Friend
The majority of people take the standard deduction for their taxes. This is a flat amount everyone is allowed to deduct with no questions asked. The standard deduction for 2021 will be $25,100, an increase of $300, for married couples filing joint returns; $12,550, an increase of $150, for single taxpayers' individual returns and married individuals filing separately; and $18,800, an increase of $150, for heads of households. If you think you can claim more than that, you could save by itemizing your deductions. This can be important for homeowners and self-employed birth professionals like yourself, who may be able to deduct more than the standard amount.
Tip #3 Don’t Forget Your Eligible Credits
Make sure you look at all the tax credits you might be eligible to claim. Tax credits are more valuable than deductions on a dollar-for-dollar basis since they reduce the amount of total taxes owed. Some credits are refundable, which means you can get money even if you don’t owe any taxes. The IRS estimates that 20% of taxpayers eligible for the Earned Income Tax Credit won’t claim it.
Tip #4 Write off All Eligible Business Expenses
There are so many expenses related to your birth pro business and guess what?……. You can write these expenses off on your taxes. Here is a list of somethings you can claim as expenses on your taxes:
Education: Training, books, subscriptions to professional journals or magazines
Insurance: Liability insurance, health insurance
Equipment & Furnishings: Computer, printer, fax machine, office furniture, camera (birth photographer), massage table (massage therapist), projector (childbirth ed)
Home Office: You can deduct a portion of your utilities and rent
Office Supplies: Printer ink, paper, pens, stamps, folders, labels
Birth Pro Supplies: Birth ball, birth stool, anything in your birth bag, birth assistant tools, educational models, TENS unit
Marketing: Business cards, website design, website fees, domain fees, advertisements, seo services, listing fees
Professional Fees: Membership dues, Back up fees, lawyer fees, accountant fees, certification fees
Rent & Utilities: If you rent an office space you can deduct all rent and utilities
Mileage: You can deduct mileage for driving to and from clients. For 2021, standard milage rate is 56 cents per mile.
Miscellaneous: Uniforms, parking and tolls, business lunches, gifts, cards
Tip #5 Proofread Your Return
Make sure tour return is error-free. The most common cause of processing delays is human error. You could also find yourself down the line owing taxes if you leave anything out. Check your math and always make sure you signed your forms. Keep a copy of the signed return for your records. Ensuring your return is correct will get you any refund you are owed faster and keep you out of the IRS’s sightlines for an audit.
Tip #6 Avoid Penalties and Interest
If you won’t be able to file your taxes by the April deadline, you may be able to file an extension. File Form 4868 by April 15, 2021 to avoid an expensive late-filing penalty – which can be as much as 22.5%. Remember that an extension to file is not an extension to pay; you still need to pay your estimated tax bill (with 90% accuracy) to avoid any penalties and interest.
If you can’t pay the full bill, pay as much as you can when you file your extension, and then apply online with the IRS for a payment agreement, or include an Installment Agreement Request with your filing for the outstanding balance.
Tip #7 File Electronically
There are many different types of electronic filing software and online tax prep. They are easy to use and make filing a breeze. They walk you step by step through the process. Plus, the IRS will confirm it is received and make sure it is complete. Most importantly your return is processed faster, meaning you get any refunds faster.
Want more tax tips for 2021 and beyond? Check out our free workshop on tax prepping