How to ensure you’re paying the correct amount of tax
Women in business tend to be more conscientious than their male counterparts. While this often contributes to their success, especially for those of us who strike out on our own and have the greatest ability to reap the rewards of diligence, it isn’t always in our best interest.
When it comes to taxes, accuracy is key. You don’t want to overpay and rob yourself of precious operating capital that could mean the growth of your business over the next quarter. But underpayment of taxes is equally unacceptable. Of course, in the midst of this pressure to get it right, you’re juggling all your other responsibilities.
As an independent contractor, your time and energy are best spent on completing the work in which you have the greatest expertise and are most highly rewarded. At the same time, financial matters cannot be brushed aside indefinitely, and there’s always something better to be doing.
One of the most reliable and accessible solutions is to simply outsource the chore. An umbrella company serves contractors by managing a variety of detailed and necessary, but unglamorous overhead duties. Contractor pay, legislative and legal documentation, insurance, and other administrative matters can be handled by an umbrella company, freeing you up to focus on the more rewarding aspects of your contracting career.
The alternative is to learn finance and tax accounting methods, maintain your records, and do your best to check that everything lines up accordingly. The government provides some guidance as to the correct manner in which to calculate your tax obligations so you can check you’re paying the right amount. But in order to do this, you need to maintain excellent financial records, continuously update them, and know how to make the basic calculations.
A good finance app can do some of the heavy lifting for you, and a simple spreadsheet and traditional filing system can be of some service here, but for many, the challenge is setting aside the time to file and record financial transactions in the first place. Others stumble when it comes to classifying transactions and generating the correct reports.
There is a surprising amount of nuance in corporate finance. The type of company you establish for your contracting business influences your choices and responsibilities, and you may be able to reduce your taxes payable and improve your financial outcomes with some savvy choices. That same reality means that, while income and expenses would seem to be simple to track and calculate taxes due, you might be losing money if you don’t bring a higher level of financial expertise to the calculations.
Setting aside regular time in your diary to update your financial records, calculate taxes, and remit taxes owed to the government can be of help. Plan to review the documents and pay taxes frequently, at least once a quarter, to reduce the complexity inherent in longer and more complicated stretches and consider outsourcing to an expert if you are not fully confident in your ability to accurately understand your tax obligations, or if you consider your time would be better spent on more lucrative initiatives.