The tax deadline is closing in. Check out my re-post for some tips that every freelancer can use.
Whether you’re new to freelancing or a seasoned entrepreneur, tax season may have you breaking out in a cold sweat. Understanding the tax laws relating to business expenses can be a little intimidating, so here are a few tips I’ve assembled to help you determine what you may be able to claim:
Keeping track of your income and expenses throughout the year is critical if you’re going to avoid the last-minute rush to file on time.
I’ll admit that I’m much better with words than I am with numbers, so I hire an accountant to prepare my taxes. Of course, his calculations are only as good as the information I provide, so it’s important that I keep good business records.
There are a variety of methods you can use to record your earnings and expenditures. Here are two I’ve used with great success:
Microsoft Excel—I paid for this software that was included with my Microsoft Office suite. It uses a spreadsheet format that you can customize to fit your business model. I set up two pages—one for income and one for expenses.
While many of your writing jobs may be through just a few companies that will provide a W-2 or 1099 at the end of January, I like to keep a running record of every job I do and my earnings. I generally compare my Excel income statement to the tax forms I receive, including my PayPal statement that identifies every payment transaction. This gives me peace-of-mind that I’m reporting all my earnings and haven’t missed any.
The Expenses tab is used to note everything you’ve spent throughout the year to keep your business running. I’ll break down what those items are in a minute. I categorize like items in separate columns and set formulas to total them, so my accountant can quickly find what he needs to fill out the Federal and State tax forms.
QuickBooks—This powerful software program makes documentation a breeze. Created by accounting professionals at Intuit, it intuitively and accurately tracks your business expenses all year to make sure you get every deduction you’re entitled to at tax time.
This is also a fee-based service, but they offer a free trial to help you get started. It syncs all your entries across all devices, so you’ll never miss a charge when you’re away from your office.
You can easily record every purchase (even online transactions) manually or download them directly into QuickBooks. Even attach receipt images to the specific expense for future reference. It’s the perfect program at tax time too. All expenses are organized into categories such as Marketing and advertising, Travel and entertainment, or Office expenses and utilities; so your accountant will have everything needed to prepare your tax returns.
The IRS allows numerous expenses for running a business that you may never have thought of, so let me give you a list of items you need to start assembling now:
- Software programs (especially those used to track your income and expenses like Excel or QuickBooks.)
- Education—whether you attend seminars, take some online classes or attend a traditional classroom setting, you can take the tuition or fees as a deduction.
- Cell phone data charges—if you use your smartphone to access the internet, communicate with clients or even write articles, you can expense a portion of your cell phone data charges.
- Printer ink cartridges—if you’re like me, you print out your work for proofreading and red-lining before submitting to your client. Those ink cartridges are pricey but luckily, they’re also deductible.
- Stationery supplies—the same goes for the paper, pens, planner and any other office supplies you need to perform your work.
- Books—whether you need them to improve your craft or for reference materials, you can claim them.
- PayPal fees—I do some business with clients who reside outside of the U.S. PayPal charges fees to exchange the foreign currency to USD, so I was able to claim those fees as a business expense.
- Mileage and transportation—while I generally don’t travel for business, many freelancers do to meet with clients, do interviews or collaborate with a team. The mileage and transportation costs are deductible.
- Office equipment—did you buy a laptop, desk, desk chair, lamp, cordless phone, filing cabinet, bookshelf or other assets for your business? Yep, you can deduct them too.
Now, this may come as a surprise, but if you have a room set aside in your home where you perform your freelance writing work (not just a corner of the kitchen table), you can claim it as a home office. To qualify, it should be a dedicated space with a desk, a chair, a filing cabinet and a computer.
Your tax accountant can give you a clearer understanding of how this works, but a percentage of these house expenses can be deducted and depreciated based on the size of your office as it relates to the overall house square footage.
These are the details I provided so my accountant could complete the proper tax forms:
- Overall square footage of my home
- Square footage of my office
- Age of home
- Purchase price
- Annual utility costs—gas, electric and water
- Annual homeowner’s insurance cost
- Annual internet cost
You may be more adept at tax preparation than I, but my accountant (the amazing number man) did an itemized breakdown of all my business earnings and expenses plus depreciation for a home office to calculate my freelance writing business taxable income.
Who knew that running your own small business could be so complicated?
I was unsure (and a little nervous) the first time I had to pull all of my business tax information together. It was amazing to actually earn money from my writing skills, but then I remembered that Uncle Sam always wants a portion of it. You’ll want to keep as much of your hard-earned money as possible. In order to do that, you’ll need to keep detailed records.
Luckily, I had some really smart people help me compile the information in my first year. They wisely suggested that I track everything from January 1st so I wouldn’t have panic attacks the following April 15th.
Obviously, if you didn’t document all of these details in 2016, things are going to be a little challenging for this tax season. Don’t let it get you down. Print out a copy of this post and start compiling the information.
You’ll be really glad you did!
So, was this helpful? Did I miss anything or do you have extra tips that may be helpful to other freelance writers? I’d like to hear your thoughts. Just click “Comments” below.
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