Estimated reading time: 5 mins
Who said “The only things certain in life are death and taxes?” Yes I remember – it was the taxman. It’s not to late to start planning for this year’s drain on your bank account by getting your finances in order.
No one enjoys dealing with taxes, especially freelancers by nature. We do this job to get away from the corporate scene and have some freedom. This freedom does not apply to finances or taxes, unluckily for us. Today, we will review some excellent tax tips to help you out when money is tight and help you better organize your financial situation.
1.If you don’t have a tax pro, get one!
If your doing freelancing as a serious full time profession, you really need the advice of an expert to turn to in times when you have questions, confused, or need help with a complex process. At the very least you should know someone you can turn to should you have a tax of financial issue. The last thing you want in your life is to get audited or investigated by your government’s tax office (e.g. the IRS in the US, Revenue Agency in Canada, HMRC in the UK) – that would not be “a good thing”. An investigation drags you down and puts you on a blacklist for future tax submissions. Specialists will help you not just with the basics of tax compliance, such as registering for the right VAT scheme or with your tax id application – they can also assist you in making sure you are tax efficient.
2.What to ask/give your accountant.
Before meeting with your accountant to go over the year, you need to have some things on hand. Most of these are obvious but you may not know of a few of these would be helpful.
- Overall net profit/loss statement: You need to bring in an overall analysis of how you are doing now compared to last time this year for your accountant to analyze.
- Your budget and expenses: your accountant will want to see exactly where all this money is going.
- A list of your clients will be extremely helpful, as this will make tax preparation easier and faster.
- Your business balance sheet. That’s the one which tells you how rich (or poor) you could be should you cash in.
3. Have some Legal Resources on Hand
What if your accountant is busy or for some reason you don’t wish to go to a standard accountant? There are other options. Below are some legal resources for your forms, legal questions, and documents.
4.Deduct from your rent.
If you live from home, there is a very good chance you can deduct some of your rent from your taxes. There are caps and exceptions to this, but it is a great way to save a little cash. Do some research or ask your accountant and you’ll be surprised how much you can save.
5.Deduct from your internet service.
This one is almost a for sure thing. As always, check with your accountant but internet usage for people that use it to work from home is usually deductible!
6. Remember and expect at least 30%
Now this all depends on how much you pull in per year. If you are making much more than the average freelancer you may pay around 40% but it is usually safe to assume to pay at least ~30 percent. Deducts can really drive this up or down so be sure to talk with your accountant to save the most (see why you need a tax pro).
7. Remember you may need a business license.
Like so many law and tax issues, this is a state/location dependent law. There are states however, that require you to have a business license, such as one for freelance writing. Dont worry, these are usually very cheap and is just a small form to fill out. They are mostly so the government can know where the money is coming from.
8. Report all legitimate payments.
This one seems obvious, but you need to be careful nonetheless. Freelancers receive small payments here and there all the time, and it is easy to forget to note and report the very small ones. I’m not suggesting the IRS will be kick down your door for not reporting a very small payment, but they want to know where the money is coming from and their fair share. Do yourself a favor and report and pay all legitimate taxes and avoid the headache or possible legal trouble.
9. Reimbursements for expenses are usually not taxable!
If a client has to reimburse you for expenses occurred, this is not taxable income in most cases. Great news but you also can’t write these off either. The IRS wouldn’t appreciate that and would want to talk to you, rather sternly I expect. Consult your tax pro to understand the rules and to discover if there are any legal loopholes you can exploit.
10. Stay Organized!
Lastly, the best way to prepare for tax time or financial troubles is to be organized. Set up a system that works for you and stick with it often. Take a few minutes at the end of each week to go over all your files and folders and organize everything. Use sticky notes or dividers to clearly divide sections. Be sure to mark the date and any other important information on all folders. Staying organized will allow you to be more productive and experience less stress.
Have you used any of these techniques in the past? Do you have some tax tips for us? Let us know in the comments section!