Tips for Tracking Expenses for Your Self-Employed Tax Return

How to file self employed tax return

The October 31st deadline to file your self-employed tax return is quickly approaching. Many landlords and self-employed individuals resign themselves to spending these weeks scrambling to collect, sort and make some sense of receipts and supporting documentation for their deductible expenses. While claiming expenses is critical for self-employed people to offset their tax liability, preparing these expenses for your self-employed tax return doesn’t have to be such a difficult process.

In fact, October can be a month like any other if you create and follow a method for tracking expenses and filing paperwork throughout the year. For such a process to be successful, it should be simple and suit your style and agenda. Here are some tips for tracking expenses so you’re ready to deduct when it’s time to file your tax return.

Half the difficulty of preparing your self-employed tax return is knowing what you can deduct as a business expense. To qualify as an allowable deduction, an expense must be directly related to the running of the business. This may seem like a broad description, and it is to an extent, but there are also strict guidelines about what can be claimed and the percentages allowed for some expenses.

Landlords benefit from specific guidelines about which expenses can be deducted against their rental income. For sole traders and small business owners, designating and calculating deductions can be more involved, depending on the costs associated with your business, such as whether you maintain a physical workspace, pay any employees, incur business-related vehicle expenses, etc. You can find guidance online about what to deduct, or speak with a tax professional to identify the specific allowable expenses that relate to your self-employment.

Once you know which expenses you will claim on your tax return, you can set up a method for tracking them. Several software programs and apps are available to track expenses (as well as manage budgets, invoicing and other financial needs) on your computer, phone and tablet. Many people may elect to use a spreadsheet software like Microsoft Excel or Numbers to create their own expense tracker.

Set up expense categories according to the deductions you’ve identified as allowable expenses for your business, so when the 31 st of October rolls around, you have everything organised to match your tax return. Next, decide how often you will enter expenses into your tracker. This could be daily, weekly or monthly, depending on how often you incur business expenses and how much time you can devote to tracking costs. Keep in mind that putting five or ten minutes aside each week to update your expense tracker can save you hours of hassled catch-up come October. Plus, tracking expenses regularly can help you keep an eye on your true business costs and better plan or adjust spending.

File paperwork accurately.

It’s recommended that anyone operating a business or filing a self-employed tax return retain all receipts and backup documentation in case they’re needed for review or an audit. This includes till receipts, chequebooks, cashbooks, invoices, credit card statements and bank statements. Once you’ve entered costs into your expense tracker, file the related paperwork in a designated file—ideally one that’s organised to match the expense categories in your tracker.

how to file self employed tax return

How to file self employed tax return

The first step to filing tax returns as a salaried individual is to obtain your Form 16 from your employer. Take a look here to know what is Form 16 before you proceed. It is the obligation of the employer to provide a Form 16 to all employees.

In the rare chance that your employer did not provide you with a Form 16 to you, don't fear; you can still e-File your returns yourself. ClearTax shows you how!

Your Form-16 is basically a TDS Certificate that lists your Taxable Income and TDS. You can still calculate that without the Form-16. Here's how you do it:

  1. Collect your payslips and figure out your Taxable Income
  2. Your Tax Credit / 26-AS will help you find the exact Tax Deducted
  3. Renting? Don't lose out on HRA if you're eligible
  4. Claim your Deductions
  5. Income from other sources
  6. Pay additional tax if necessary
  7. Finally, File your Income Tax Return

1. Collect your payslips and figure out your Taxable Income

Put together the net salary from all the payslips you have received from your employer in the financial year.

If you have switched one or more jobs in a financial year, make sure you include payslips from all employers you have worked for in the year.

2. Your Tax Credit / 26-AS will help you find the exact Tax Deducted

Calculate the TDS deducted by your employer over the year and match the amount mentioned on your Form 26AS. Click here to learn how to download your Form 26AS.

If you see a discrepancy in the TDS amount actually deducted and the amount that is supposed to be deducted, contact your employer immediately and ask them to rectify the error.

3. Renting? Don't lose out on HRA if you're eligible

Many employees have a House Rent Allowance (HRA) component in their salary. To claim the HRA deduction, you must submit your rent receipts to your payroll department in advance.

If you haven't submitted the receipts to your employer, you can always claim it while filing. If you are unsure how to calculate HRA, just contact ClearTax and Tax Experts can help you out.

A number of investments are tax deductible. Keep your investment documents handy and compute the amounts eligible for deduction under sections 80C (Life Insurance, Employee Provident Fund, Public Provident Fund etc.), 80D (Medical insurance premium), 80E (Interest on education loan) etc.

While claiming deduction for Provident Fund, make sure you claim only your contribution to the PF, and not your employers' contribution. Click here to read about the various deductions you can avail.

5. Income from other sources

If you earn an income from any source other than your salaried job, do not forget to include it under taxable income. Such sources of income can include interest earned on Fixed Deposits, income from rent on property owned by you etc.

6. Pay additional tax if necessary

If you find that the total tax paid by you in the financial year is less than what is actually payable as per the Form 26AS, pay the variance online. Learn how to pay tax online.

7. Finally, File your Income Tax Return

After you have ensured that the taxes paid by you match the taxes payable by you, go on to file your returns online. ClearTax is the easiest way to e-File your Tax Returns online.

Self Employed Tax Return – If you are a self employed individual, you need to fill up Self Assessment tax return annually, Every April or perhaps May. The HM Revenue & Customs (HMRC) will send a letter instructing individuals to complete the filing of tax returns.

You are asked about the information of your income from any business and other earnings needed to pay like rental income. This is being done to figure out how much National Insurance and tax contributions needed to pay. You have to provide correct details and get the documents on time at HMRC.

You have to keep any records so you can properly fill up the tax return accurately. The more records you keep the easier for you to answer all questions that are asked by the HMRC. You can also ask help from an accountant. However, self-assessment is simple as long as you can do it by yourself.

Check if you are self-employed individual

The National Insurance and tax contributions that you pay often depends whether you are really a self employed individual or not. You are likely to be self employed if you can correctly answer the following questions;

• Do you have the idea how the business is running?

• Are you accountable for meeting losses and also taking any income?

• Can you hire somebody to do the work for you?

• Are you not afraid to risk your own money?

• Do you provide the equipment you need for the job?

• Do you agree to perform a job for a fixed price despite of how long it takes?

• Can you make a decision what work to perform, when and how to work and also where to give services?

• Do you work regularly work for different people?

• Do you correct unacceptable work in your time and at your own expense?

If your answer is “yes”, then you are self employed for some other work but considered employee of any business as well. You have to pay normally the tax and the National Insurance contribution in case you are;

• You are a director of a company

• You are a secretary of an office

How to register for self assessment?

If you are a self employed, you have to register for a business tax through HMRC. This can be done online. When you have already registered, the HMRC will send out Unique Taxpayer Reference and organize the proper tax and National Insurance record for you. They will also require you to complete the tax return annually.

In case you are no longer self-employed individual, you need to fill up the Self Assessment tax return intended for the tax year wherein your self-employment ends. The date of the tax year runs from April 5 to April 5 of the following year. On the tax return pages, show the exact date wherein you stopped as self-employed.

If you have received the tax return the next year, and thinking that you do not need to complete it, see the HMRC immediately.