Don't be like this guy on tax day!
Boy did I have a rude awakening this week.
When I started freelancing a few months back, I was so involved in finding ways to make money and run a business that I failed to take one very important thing into consideration: TAXES.
This of course became a little more complicated once I started working for corporate America.
Fortunately, I did stumble upon The Money Book for Part-Timers, Freelancers, and the Self-Employed and implemented their system of saving for taxes. The bad news that this wasn’t until around December, as in the end of a taxable year.
I did have enough money to pay my taxes, and on top of that, I saved every receipt that could have given me a deduction (office supplies, domain names, marketing, etc.). And since I was just starting and had no idea what I was doing anyway, I didn’t have to pay that much after all.
Below you will find a list of tips for any of you who may be struggling with some of the same things.
1. Educate yourself about taxes in your state.
Taxes vary depending on the state, particularly if you live in a place where you have to pay a state tax in addition to the federal tax (Here’s looking at you New York). Educate yourself on the tax situation in your state so you aren’t hit with any surprises.
2. Make a separate savings account specifically for taxes.
There is a wide variety of online banks that you can use to save for your freelancing taxes. With every check you get, save about 15% (to be safe) and allocate it into it’s corresponding taxes savings account. Unfortunately, that money is as good as gone once the tax man comes, which gives you incentive not to spend it on something frivolous.
3. Keep documentation of payments.
Unless you are getting 1099s from a client, you should be saving your payment stubs as proof (and it’s generally good accounting). I personally really like PayPal, although people have different organizational methods.
4. Save your receipts and credit card statements.
As a freelancer, you can actually make some more deductions than the average tax payer, so SAVE EVERYTHING. Web hosting, domain registration, marketing, office supplies, internet connection it all adds up!
5. Turbo Tax = Awesome
Tax laws change all the time. Turbo tax makes it easy for you to do your taxes with the least amount of pain possible. They even have a section specifically for freelancing income.
6. Pay your taxes every quarter.
Since freelancers don’t automatically get taxes taken out, how much you owe Uncle Sam can really add up. For this reason you should pay your taxes quarterly. Of course, if this is your first time filing your taxes with freelance income, this won’t apply until later. You should receive information regarding how much money you should pay every quarter one you file your first return.
I will conclude this post by saying that I am not an accountant, so if you have any questions please consult a professional. Also, below you will find a list of blogs which will help you find information on billing, taxes, and anything freelance.
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