Preparing for Tax Time
With tax time right around the corner, everyone is gearing up to file and hopes for some sort of refund- found money! For freelancers like myself, this could be an upsetting and arduous task if you’re not prepared. I’ve always been umm…let’s say diligent…about keeping my books in order, looking over them weekly to make sure I didn’t miss anything, and to get a good snapshot of how I’m doing for the year. If you’re not prepared, however, it can be a real pain and a bigger shock. Here are some tips for being prepared for tax time- especially for you new freelancers.
First thing’s first: Get an accountant! He or she will help you with expenses, write-offs, and give you some very valuable advice that could end up saving you some money. My accountant was the first one to tell me Âyou could write-off mileage on your car (when used for business purposes, of course), as well as how to handle filing (for most freelancers in the USA, it’s as simple as marking income down on your Schedule C). An accountant will also help you get an idea of what you’ll pay in taxes. Wait…what?
Yes I know; it’s very upsetting to hear, but as a freelancer, your days of tax refunds are probably over. You don’t have an employer taking taxes out of your checks anymore, and you’ll get hit with fun charges like the self-employment tax. This brings me to my second piece of advice: Save often. The best thing to do is figure out what amount you can afford to save and save that. The amount of taxes you pay is based on the decided tax brackets for the year. Since the Bush Tax Cuts were extended for this year, all of the brackets are the same as last year. That may change next year, so be prepared. I save about 40% of all of my income for taxes, things I want to save for, and for slower times where money might get tight. The number you come up with should be determined by you and your accountant.
Start early. The sooner you figure out how much you will inevitably owe Uncle Sam, the softer the blow will be. I like to talk to my accountant in early January. Even though W2s and other tax forms haven’t come in yet, we go over my books to get a rough estimate of how much I will owe. That way if I do owe more than expected, I have a few months to save a little extra. When you do talk to your account, also ask about paying estimated quarterly taxes. Based on how much you made the previous year, you’ll have the option of paying taxes every 3 months- this can really lighten the financial load come tax time.
But don’t just take it from me! Here are some other resources for preparing for taxes as a freelancer:
If you have any tips or questions, feel free to post them in the comments!