Preparing for Freelance Taxes Year Round

January 21, 2009

It’s January 2009 and most freelancers are still preparing to file their 2008 taxes -  but it’s never too early to begin preparing and organizing for 2009!  In fact, spending some additional time now will keep you organized throughout the year, and make preparing and filing your freelance taxes a breeze next January.

If you’ve earned more than $600 during the year on freelance projects or through your small business, you are required to report that as self-employment income in the United States.  Here are two tips for getting organized for the 2009 tax year that will save you a lot of frustration and hours of preparation next tax season!

Set Up an Easy Filing System to Find Your Deductions

Just about anything you buy to perform your freelance work is a deduction, but you’re only able to enter the details if you save your receipts!  Some people toss all of their receipts into a shoebox and sort them at the end of the year, but you can save time if you file them away in an organized way.

Accordion files work great for receipts and credit card statements you need to save for tax time, and so do plastic or checkbook register style coupon organizers.   Create common expense categories for your business, things like “subscriptions”, “office expenses”, “communications”. 

Instead of sliding all receipts into one box or file, take an extra minute to put it into the appropriate category.  Keep business and personal receipts and credit card statements separate from each other.  The extra few minutes a week spent keeping your receipts and statements organized year long could save you hours at tax-time!

Keep Track of Your Money

Freelancers probably experience the most sporadic income of any industry!  Working for yourself typically means you don’t have a set “pay day”; and can rarely expect to make the same amount each week.  This sporadically received income is all the more reason to keep a close eye on your money.

Each time you receive a payment from a client, record it in a notebook, spreadsheet or bookkeeping software. You’ll want to know the date the payment was received, the amount, and if there were fees associated with receiving the payment, record those as well. 

It’s a good idea to save 15-20% of all income for taxes – but check with an accountant for the exact amount and how you should be paying it if you’re not sure.   It’s also a little easier to track your money if you set yourself up with a regular “pay day”.  You may receive payments on Monday and Wednesday and three on Thursday, but rather than taking the money out as fast as it comes in; you might find leaving your earnings in a bank account or Paypal account until a specific day of the week makes managing and tracking your money easier.  You may still never know exactly how much you’ll make on your designated “pay day” in advance; but at least it is a step in the right direction as far as money management is concerned.

Related posts:

1. Disorganization Costs the Freelancer Money
2. Tax Tips For First Time Freelancers
3. Before you Quit your Job - How to Determine your Replacement Income

Posted in Business Planning, Freelance Success, Success Skills