Tax season is dreaded by virtually everyone, but it’s especially bad for freelancers. While it’s not much help knowing that freelancers are all in this together, it’s somewhat comforting to realize that there are thousands of others in the freelance web design business going through the same thing.
To avoid a headache around tax time, take a look at these tips to help make the process a lot more manageable.
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Software is your friend
If you’re not already using a bookkeeping and invoicing program for your freelance business, then start using one today. These programs will make it much easier when tax time rolls around to list all of your income and expenses.
Check out some of these tools that help with invoicing, time tracking and bookeeping. Being organized might take some time in the beginning, but it will be worth it by year’s end.
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The importance of being prepared
A good sense of financial management is something any tax professional will say is of the utmost importance. To ensure your finances and taxes are in order, make sure you have these forms:
1099 from all clients that were billed $600 or more.
IRS form 1040-ES to estimate quarterly taxes if you think you will owe more than $1000 (or if you want to pay quarterly taxes regardless). If you have a full-time job, but receive up to $400 for freelance work then you must use schedule SE on form 1040.
Use Schedule C-EZ Net Profit From Business Form if you are self-employed, with no employees, and have less than $5,000 in business expenses.
Visit the official page of the IRS here to find any additional forms you may need or to look up more information.
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Keep Track of Everything
Everything from the computer used for work to the room you’re sitting in completing the work can be deducted. Some things can be tricky, for instance, making a deduction based on your home office means that the area used for work must be used for work and only work, but anything done legitimately can be deducted so that your tax liability is as low as possible.
Your computer, travel expenses, health care expenses, and retirement savings are all deductible up to a certain percentage. Repairs on equipment used for work, including your vehicle, can also be deducted. Tax Tips for 1099ers has some other commonly overlooked deductions, such as homeowner’s insurance, that are worth investigating. After all, most of us would agree that a penny in our pocket is better than giving it to Uncle Sam!
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Ready to File
Once you have all of your paperwork together and are ready to tackle the beast, then go for it. If you don’t feel you’re ready to do it on your own, then hire a tax professional to help.
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Dana Rasmussen has been in the freelance game for more than five years. She knows more about taxes than she ever thought possible, but still hires a professional to do them for her.