Freelance Writing Business Tax Tips: 4 Things You Can Do to Make Filing Your Taxes Easier
January 12, 2010
Tax season is right around the corner. If you’re a freelance writer, this can either cause angst or not (there’s no in between; I mean really, who’s ever happy about tax season). So, you’re probably either feeling a bit queasy at just the thought, or it’s one more thing on your list that you have to handle (no emotion attached thank you very much).
Following are four things you can do to get ready for the tax man. And who knows, if you have all your ducks lined up, you may just feel a teensy, weensy bit joyful the closer Thursday, April 15th gets (come ooonnnnn, you can squeeze out a smile).
Freelance Writers: 4 Things You Can Do Now to Make Filing Taxes Easier
I. Categorize Your Expenses: Freelance writing is a business that, at the outset may not look like it has a lot of expenses, but they can add up. So make sure you know what these are.
Some obvious ones are PayPal fees deducted from payments you’ve received from clients; offices supplies; telephone/cell phone charges and office equipment.
Some less obvious expenses you may forget to account for are:
Fees you pay for professional organizations like your Chamber of Commerce (you’d be amazed at how many forget this fee);
Mileage expenses if you drive to and from networking meetings or to meet clients;
Travel-related expenses: For example, if you go somewhere and write about it and submit to sites like AssociatedContent.com or sell it to your local newspaper, that’s a legitimate freelance writing business expense. Now, how much of your transportation, meals and other trip-related expenses you deduct can be a bit dicey, but it is a legitimate expense.
FYI, this is why I use TurboTax to efile taxes. It truly is practically impossible to go wrong with this software. Before finding TurboTax, I paid an accountant upwards of $3,000 some years to file my taxes (this was when I had an editorial staffing agency in New York). I’ve used TurboTax for the last four years, and I love it.
Disclaimer: I have no affiliation with TurboTax; I’m just happy user.
Recognizing Expenses Tip: Mentally do a walkthrough of some of your days as a freelance writer. Do you attend networking meetings on a weekly basis; does FedEx regularly pick up packages from your home office; do you use e-fax because you have a paperless office; do you backup your files when you close up at night; etc.?
I do a mental rundown like this when I pack to travel so that I don’t forget anything. By doing this kind of walk through, you remember expenses you may easily forget (eg, your monthly e-fax bill; your annual backup data storage fee; your mileage to weekly networking meetings, etc.).
II. Income: Income is much easier to calculate than expenses. I mean really, who forgets how much money they brought in, right? Not many of us.
HOWEVER, as freelance writers, we have a lot of clients and some of them are “one off” jobs. So don’t forget to declare that income. You should have some type of system where you track all jobs. You do, don’t you?
If not, get in the habit of doing so – now – because one time not declaring some income can have you paying out more in taxes — years later.
Freelance Writers: How Not Being Organized Can Cost You – Years Later — in Back Taxes
I remember one year I didn’t declare like $1,600 from a client who didn’t send me a 1099 at the end of the year. I simply forgot about the job because it had been done at the beginning of the year and the client never used my services again.
So two years later when I got a “revised” tax statement from the IRS, I owed hundreds more in taxes. I can be pretty flighty at times, but I’m not stupid. From that day on, I got organized — quick, fast and in a friggin’ hurry!
1099 Due Date: When You Should Receive These from Clients
The 1099 due date is the end of January. This is when all clients you’ve worked for the previous year should have mailed out your 1099 – if they paid you more than $600 over the course of the tax year. But, some of them don’t. Ultimately, it’s up to you to track your income.
Receipts: One of my sisters owns a business and she several rental properties. She’s a master receipt keeper. I swear to God, if you ask her for the receipt for a key she had made three years ago on October 18th, she’d dig it out.
I’m not that great with keeping receipts for every little thing. But for the big stuff, I do (eg, purchasing a new laptop, cell phone charges, shelf installation in my home office, etc.).
You never know when you’re going to get audited. So it’s best to keep all receipts. Some accountants say keep them on hand for three to five years. If you haven’t been audited for years gone by by then, then it’s a very good chance you won’t be.
III. Questionable Writeoffs: Is your home office really a home office? If so, how do you account for it? If you take a client out to lunch, can you write the whole thing off, or part of it? When you travel for business, how much of your trip is deductible (meals, car rentals, plane tickets, money exchange fees (if you travel internationally), etc.
All of these are sticky situations where it takes some reading to understand. If you use an accountant, you can ask them. If you use a software like TurboTax, it can give you guidance and you can even request help from an actual tax expert (for a fee).
Line up these questions to ask before you sit down to do your taxes or drop them off to your tax preparer. It’ll make the process so much easier.
IV. Filing Date: Finally, set a date to sit down and file your taxes or meet with your accountant.
This way, you won’t be rushed into doing them at the last minute when it can cost you more. Not only because mistakes are more prevalent and/or your accountant may charge a rush fee, but because you are in such a rush to just “get them done” that you don’t take the time to get every write off you’re entitled to.
Caution: Be Aware of Tax Scams This Time of Year
The tax scammers are starting to come out. Just a couple of days ago, I got an “email from the IRS.” I didn’t even open it. Why? The answer is, and I put the phrase in quotation marks because, the IRS does not send emails. Again, the IRS does not communicate with taxpayers via email. They will always send a letter.
The goal of IRS scammers is to get a hold of your financial info – name, social security number, birth date, etc. All of this means they can steal your identity and ruin you financially. It can literally take years – and thousands of man hours – to get this all figured out.
Don’t fall for it.
REMEMBER, “The IRS does not discuss tax account matters with taxpayers by e-mail.” Source: IRS.gov.
Learn more about IRS phishing scams directly from the IRS.
Happy Tax Filing!
Yuwanda
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