How’s freelancing going for you so far? Don’t you just love the freedom, non-limiting setup, working-in-jammies, and being your own boss despite having challenges (you have and will survive) along the way?
Freelancing has its upsides. It may have cut you some slack in terms of dealing with moody, unreasonable bosses and gossipy co workers however, you can’t runaway from a whole new desk of responsibilities ahead of you. One of which is dealing with taxes.
If you think just because you’re no one’s employee means no taxes to pay, you’re wrong. Yes, you’re free from the hustle and bustle of the city and nosy colleagues but you’re not free from taxes. Even Uber and Lyft drivers; and Airbnb hosts get to pay their dues once they reach a definite threshold.
Don’t fret yet, here are the basic tax know-hows for freelancers and self-employed people alike (and for those stepping into the world of self-employment). Take down notes and know where your money should go.
State your source of income
Like a number of freelancers do, you may have more than one source of income (i.e. catering services and writing on the side, photography and blogging, etc.). If that so, you most likely have to fill up numerous forms.
Track your sources of income; gather all of it and include it in your report. Let’s not make life any difficult that it already is, start tracking your data,
Prepare your taxes
When you’re working full-time for a company, your estimated taxes are automatically calculated and withheld each paycheck. But now that you’re a freelancer, you’re responsible for calculating and paying your estimated taxes quarterly.
Secure a tax ID number for your business. File your taxes by using the respective form. You can visit the government agency’s website to find out and download the appropriate form or you could visit your nearest respective government agency.
Don’t even think of skipping or missing payments otherwise, the IRS will charge you hefty penalties and fines.
Keep your receipts
Just as you would keep track of your source/s of income, it’s equally important to keep on record of your receipts. Your work-related subscriptions and membership fees, office supplies and equipment purchase receipts and even home office renovation expenses can be deducted.
Yes, your work phone, a percentage of your internet connections, utilities and bills, that you utilize for your freelance job can be deducted. Now, take the time for a record-keeping!
Home office deduction
As previously mentioned, home office deductions are entitled for those people who, of course, work from home. No, working on your bedroom of kitchen doesn’t qualify you to a deduction.
You need to designate a dedicated space in your home that is exclusively for business use. A small home office or portion of a room will do the work.
Travel, auto expenses and entertainment
Did you know that you can report your travel, meals, mileage and auto expenses, and entertainment for deductions?
Traveling to a some place to meet a client? Perhaps attending a business event? These expenses can be deductible but no—your commute to a coffee shop to do your work there isn’t qualified. Meals and entertainment with clients are deductible as well.
As per your auto expenses, note your mileage and auto expenses. Remember that for these to qualify, you need to provide an extensive report. You can’t just list a travel expense as a “business meeting”. You need to provide an evidence and proof of how it’s relevant for the development of your work/business.
Work with a tax professional
You don’t necessarily need a professional to manage your taxes for you but we recommend you hire one. Taxes can be confusing especially for first-time filers and freelancers. It may cost you a hundred bucks but we guarantee, it’s worth the penny considering a pro would likely hit all the right deductions. Plus, these experts already know what they’re doing.
It isn’t too late to get your taxes straight. What other tax tips you think would be helpful to first-time freelancers? Don’t hesitate to share it with us! Leave your comment below.
About Chie Suarez
Chie is a daytime writer for Depreciator – Tax Depreciation Schedule, a company dedicated completely to Tax Depreciation Schedules that aids the Australian property market.