From having a flexible schedule to choosing the clients you work with, there’s a lot to love about being a freelancer; however, tax preparation doesn’t typically make the list. Unfortunately, working for yourself often makes doing taxes complicated. If you want to avoid numerous headaches during tax time, find a trusted accountant, and remember the following tips.
What Freelancers Should Remember About Tax Preparation
1. Keep Track of All Income & Expenses
As a freelancer, you must be diligent about tracking the money going in and out of your business. Keep a spreadsheet of all income from every client and keep digital and hard receipts of any business-related expenses. You’ll need all this information when it’s time to file taxes.
If you’re not good at filing and organizing information, consider using a bank or budgeting app. If you’ve hired an accountant to help with finances, make sure they can track your income streams to update tax estimates and provide feedback on potential expenses you might need.
2. Learn Which Expenses Are Deductible
Indeed, you often must spend money to make money. Fortunately, many of these business expenses—including advertising, travel mileage, office supplies and furniture, building rent, and upgrades to assets—can be deducted from your taxable income to reduce your overall tax liability. If the expense is related to your industry and necessary for you to do your work, it can generally be partially or fully deducted in the same or following tax year.
3. Pay Quarterly Estimated Taxes
In a traditional job, employers are responsible for covering Social Security and Medicare taxes. As a freelancer, it’s your responsibility to cover this by paying a 15.3 percent self-employment (SE) tax in addition to regular income tax. You must pay quarterly estimated taxes to cover these fees if you expect to owe at least $1,000 after subtracting withholding and refundable credits, which you expect to be less than 90 percent of the tax shown on the 2020 return or 100 percent of the tax shown on the 2019 return. Skipping these payments or underpaying could result in penalties when it’s time to file your return.
Take the frustration out of the tax preparation process by turning to Demshar Eaton CPA in Ashtabula, OH. For 42 years, this accounting firm has provided personal and business bookkeeping and tax return services to Ashtabula, Conneaut, Geneva, and surrounding Ohio communities. They offer a personal touch to every client, so they fully understand what’s happening with their income, taxes, and payroll. Call them today at (440) 992-6622 to get started.