March 14, 2009
You’ve finally taken the plunge into the world of self-employment. No more bosses, cubicles or co-workers cramping your space. You have joined the ranks of people who have the pleasure of doing something they love for a living, you are free to make your own schedule and you can’t think of a single thing that you don’t like about being a freelancer. That is until tax time. Yes, with all things in life there are positives and negatives and when you are first starting out working for yourself one big negative can be dealing with taxes. For people new to self employment the following tax tips can make life a lot easier when dealing with Uncle Sam.
Pay a professional. Some people may say this is an unnecessary step when you are just starting out, however hiring a professional can take a lot of the guess work out of filing your taxes. Your situation changes once you become self employed and it just makes sense to look for help from someone who is familiar with self-employment taxes.
Get organized to keep very good records. Unlike your previous employer, you probably do not have a bookkeeper to track income and expenses. The responsibility of keeping good records, saving receipts and being able to support your deductions falls on your shoulders. Do not wait until the end of your first year to begin keeping track of these important items. You can use a spreadsheet, a software program or even a simple notebook to track business expenses and income. Remember to track all legitimate payments as freelancers often find themselves receiving small payments here and there that are easy to forget.
Deductions and business expenses. If you have your own home office you can deduct the percentage of you home used exclusively for business purposes. This percentage can be deducted from your mortgage or rent as well as home utilities. You will want to keep receipts and track how much money you have spend on business travel, postage and shipping costs, office supplies and subscriptions. Any business related expenses such as upgrades to your computer and computer software can be used as deductions but it is important that you can support these deductions with proper documentation.
Keep things legit. Although few people will admit it, there are folks out there that sometimes try to include something that isn’t really business related and suffer the consequences if they find themselves targeted for an audit. You don’t want to start your career as a freelancer by being under the scrutiny of the IRS, so only claim business related expenses that you can support with documentation.
If you take the time to set up a system at the beginning of the year (or your switch to self employment), keep track of all your paperwork, and educate yourself on taxes for the self employed, you will quickly discover that while tax season may not be fun, it doesn’t have to be something you dread.