Income Taxes for Freelancers
That dreaded time that comes around every spring is here. Yes, I am talking about the tax season deadline, April 15th. Freelance copywriters, whether full- or part-time, are self-employed workers and therefore must fill out a tax return on their income each year. It is important to remember to include taxes in your calculations when you quote a job, and then put aside a percentage of every job to pay your income tax bill.
Tips to Make Paying Income Tax Easier
Pay Quarterly Taxes
Unless you are a genius at saving money, it is easier to pay income taxes quarterly because they are in smaller amounts. You can also put aside the money in a savings account for yearly taxes if you can keep yourself from using it for other expenses.
Track Your Expenses
Tracking expenses for each job on a regular schedule such as weekly or daily makes figuring out taxes at the end of the year much simpler. A software program such as QuickBooks will calculate your totals, assign them to accounts and configure your reports for you, giving you the numbers you need to prepare your taxes.
The standard accounting rule for keeping records is to maintain them for seven years. Keep an electronic record on a thumb drive, on the cloud and a paper copy in the case of a tax audit. Once the records are obsolete you can shred any documents to prevent identity theft. It is not enough to keep your tax files; you must keep your receipts and account files also.
Keep a Receipt Folder
It is a best practice to keep any receipt you receive for expenses related to freelancing. These can be restaurant bills for working meetings, utility bills for work-related expenses, equipment purchases such as new computers, clothing for work, gasoline for long-distance travel and conference expenses for freelance seminars.
Do not try to fool the government. Be honest and thorough about what you tag as expenses. If you bought the dress for your cousin’s birthday party and now wear it to work meetings, it doesn’t count as an expense. Utility bills and office expenses must be split between home and work use if you work in your home. Coffee at Starbucks because you work there every morning does not count as an expense either. If you buy the coffee for your client, then you can expense it.
Receipts that Disappear
One of the peccadilloes of the modern world is that paper receipts do not last well. Many companies print on thermal paper which fades easily when kept in a warm location. For that reason, it is best to enter the receipts as you get them or once a week to make sure not to miss any expenses. Small expenses for paper or printer ink can add up quickly and are reasonable to include for tax purposes.
Paula A spends too much time online, drinks too many cups of coffee and enjoys her vices thoroughly. You can find her in front of a computer or on her smartphone with a cup of coffee nearby almost any day of the week.