Disclaimer: This is advice from experience and on a tool I use which includes affiliate links. I am not a tax expert.
Unless you are a CPA and actually enjoying crunching numbers and somehow understand everything in the end or why you paid what you paid, you don’t enjoy the ever-looming day of April 18th, 2017. Now, usually taxes are due on April 15, but that day this year falls on a Saturday. Furthermore, Emancipation Day, which turns out to be a holiday in Washington, D.C., will be observed on April 17. Thus, tax day was moved to April 18th.
If you’re new to the freelance game or have never done your own taxes, there won’t be much that feels worse in the coming years than having a fat bill handed to you by the Internal Revenue Service. In the coming words, you’ll learn how to avoid that fate.
The bad word: Taxes
The Best Freelance Tool
Being employed through someone else, your taxes were always automatically taken out of your paycheck so the only time to think about taxes was on the day to pay your taxes. Now, things are different for you.
Few situations will take the pep out of your step quite as fast as realizing you should have been putting money aside the entire year. Most often, new freelancers don’t put separate funds away to pay the IRS later and it comes back to bite right in the backside of the bank account.
Maybe you’re like me (which you might be, considering you’re reading this) and in previous years you waited until a week before the due date to figure all this out and even then didn’t know what you were looking at or why you owed what you owed. Bad news, you still have to pay it. Don’t worry; we’ll walk through this.
Know this: I’m about to promote the crap out of a service I truly believe in. I’m not doing this to make money (they cap it at $590/year, in gift cards nonetheless), I’m promoting QuickBooks Self-Employed because this platform has helped me tremendously in the past years with staying current and organized on transactions and deductions.
Let’s get in it.
Income & SE Tax
Lots of things change when you go head-first into your freelance or solopreneur career. Most often, it’s your income whether it be a positive or negative change. Being self-employed, you have may have many sources of income. With those sources should come many 1099-MISC forms from clients in which you made $600 or more from.
Of course, when it’s time to file, turbotax will walk you through the steps to correctly file those 1099 documents.
Here’s where the setting-aside-money part comes in. Self-employed individuals generally must pay self-employment tax (SE tax) as well as income tax. SE tax is a Social Security and Medicare tax primarily for individuals who work for themselves. It is similar to the Social Security and Medicare taxes withheld from the pay of most wage earners. In general, anytime the wording "self-employment tax" is used, it only refers to Social Security and Medicare taxes and not any other tax. IRS reference.
You may be thinking, “Well, what are the guidelines to know if I fall under SE tax?”. The rule is simple: If you made $400 or more in your business during the year, then you must pay SE tax.
Now that you know you have to pay it, you should be wondering how much you have to pay. It’s steep and it hurts if you didn’t set anything aside. SE tax is a whopping 15.3%.
@@To be financially tax-safe, you should set aside 30% from each freelance job.@@
Receive up to 50% off the first 6 months when you sign up with QuickBooks through my link!
Expenses & Deductions
This is by far the best tool I have ever used in not only keep track of finances but also mileage, quarterly tax due dates, and categorizing all my transactions. And the best part of all: I just export it all to TurboTax when it’s time to file.
Reducing Tax Liability
Now that we have a general idea of what to file and whether we should or not, it’s time to talk about the beautiful word of deductions. But first, let’s remind ourselves to not get greedy. Most business expenses can be deductions but are just that, expenses for business.
Freelancers will often have more deductions than a normal employee. Because of your career, a home office, a new printer, or flying across the country to a client might be viable for deductions. If you’re a photographer, a new Playstation might not be counted towards deductions.
What you are allowed to do is take deductions that are both ordinary and necessary for your business operations.
Being somewhat new in your creative career means you probably don’t have a ton of expenses, which will make the whole process easier for you. Small businesses with expenses of $5,000 or less may qualify for filing with the Schedule C-EZ. You’ll have to read the form to find out for your own business.
Either way, you’re going to make purchases at some point for your business and let’s face it, in self-employed jobs we have to capitalize on the deductions we’re offered. Let’s go over the main categories.
Travel, entertainment, meals
Let’s say you need to fly across the country to a client. While there, you treat the client to a baseball game and a dinner. You’re going all out trying to shmooze this fella. In this situation, the only expenses are:
- Travel expenses
Are these expenses able to be written-off? Well, are they furthering your business? If you can answer yes and are able to reasonably prove it to the IRS if asked, then you can deduct them.
If you have your business accounts synced with the platform, all the expense information is there. Now you either swipe left or right to categorize to a personal or business expense.
If you don’t have your accounts linked, all you have to do is get on your QuickBooks app and log the travel and baseball expense, then take a picture of the dinner receipt. QuickBooks will automatically aggregate the information from the receipt so then all you have to do is review it.
Easy invoicing, automatic mile tracking, receipt storing, deduction sorting, simple quarterly taxes...
Let’s say you’re a photographer and have to go meet a client downtown. It’s a 30 mile drive and you just wish you had some type of break for the money it costs to get there. Maybe you’re charging the client for travel expense but, hey, you’ll take what you can get.
What if I said you could get a 53.5¢ deduction for each mile driven? That a $16.05 tax deduction from those 30 miles! Then, what if said all you had to do for the $16.05 deduction is swipe left or right to categorize the drive for personal or business since it’s automatically detected. Yes, it’s seriously that simple. If you drive for your job outside of your normal commute, you need to be logging the miles.
The best part of all is that this is part of the app! There’s no added MileIQ or anything else to pay for! QuickBooks has made the best all-inclusive app for the self-employed.
Here’s the situation: You’re a photographer and just dropped your precious piece of money-making material. The lens shatters and the internals of your equipment no longer functions. To say the least, it’s a sad day.
From that, you’ve decided to step up your photography game and buy the best within your budget. Can you deduct that camera and newly-bought equipment come tax time? You sure can! Actually, you’re able to deduct $2,500 worth of long-term equipment used in your business. That may also include a picture printer, tripod, and anything else used to aid your money making.
What it wouldn’t include is the newest Call of Duty game or Xbox gear unless, of course, you’re a full-time gamer and happen to break that business equipment.
Again, take a picture of your receipt and not only are you logging your expense, you’re also storing the proof of receipt. No need to keep it in a folder only to lose it on moving day!
Like most freelancers, I want to open up the possibility of being paid by clients to as many as they feel necessary to make them comfortable. This means I’ve accepted payments from Chase quickpay, Venmo, Paypal, personal/business check, and cash. Obviously, more channels of payment means more possibility for confusion and missing things when it comes tax time.
Remember that Apple-trademarked phrase, “There’s an app for that”? Well, my new saying is, “It’s in the QuickBooks app.” Yes, invoices are in the QuickBooks app and they are easier than ever. Not only can you make an itemized invoice in mere seconds, you can track the invoice to see if it has been opened and even remind the client that you’re waiting on payment by either debit or credit.
QuickBooks Self-Employed is by far the best all-inclusive platform for small businesses. I don’t know of another app and platform combo that provides:
Quick and professional customized invoices
Automatic mileage tracking with easy categorizing
Payable quarterly taxes
Virtual receipts and information storing
Easy exporting to Schedule C filing with turbotax
I’ll say this, it’s almost exciting to open up the app and categorize whatever transaction or mileage log comes up.
When you sign up through my affiliate link you’ll get 50% off of the basic and 29% off of the bundled for the first 6 months.
Again, the money-making cap from QuickBooks affiliate links is only $590. I’m not solely promoting to make money. I only wish I would have know about this platform sooner and because of that, I want YOU to know about it.