Freelancing, Taxes and Your Design Business
It’s that time of year again to start thinking about taxes. While that makes many people cringe, it’s an especially trying time for freelancers. Before panicking, realize that you are not alone. There are several other people involved in the design business who freelance full-time and need to navigate the tricky world of taxes.
Use this guide and tips from LearnVest to help you through it
1. Your design business income is going to be the biggest concern for yourself and the Internal Revenue Service. Freelancers receive a 1099 from any client with what was earned, but only for jobs that generated $600 or more.
It would be beneficial to keep your own records for each job performed with what was earned so that it is easier to keep track of how much of your income should be earmarked for tax liability
2. Keep track of all business expenses. This is a broad category and includes virtually everything. Business cards, advertising, business insurance, rent paid on workspace, interest paid on work credit cards or loans, travel costs, office supplies, business meals and entertainment, repairs for business items, and anything else spent that was directly for the business should all be accounted for as it is tax deductible.
Keep all receipts or make copies of receipts to ensure that every last penny spent on your business is recorded. It may seem like a pain at first, but it is much easier to keep track of all expenses as the year goes on than to try and get everything together during tax season.
3. As a freelancer, you’re probably used to do everything yourself. Well, tax season is the one time of year when you should definitely hire a tax professional to prepare everything you need. It’s worth the money, plus these professionals know of tax laws pertaining to your special needs that will benefit you in the long run.
It’s also a great way to make sure that you don’t make mistakes. Plus, even if though you have to pay the tax professional, you could end up spending that same amount or more for missing out on deductions that the professional would have easily found.
Also, make sure the tax professional is familiar with or specializes in preparing taxes for freelance workers. There are unique laws that go into the world of freelancing and it can be tricky even for professionals.
4. Make quarterly payments throughout the year to stay on track with what you owe. This eliminates having to pay a large tax bill in April, and it also prevents the IRS from charging some fees.
Use the 1040-ES to pay quarterly taxes.
It’s not has hard as it seems
Visiting the IRS site itself provides freelancers with a wealth of information about the form-filled world of taxes.
Financial management for freelancers doesn’t have to be a perilous task. Just remember, don’t put it off until the last minute and don’t hesitate to contact a professional for additional help. Doing taxes can be a headache, but they’re a necessary part of life. Getting it done correctly the first time will save you from audits and future headaches of the tax-variety.
Dana Rasmussen is a full-time freelance writer. Tax season used to stress her out until she became meticulous about keeping records.