Trading in the business suits, alarm clocks, and face-to-face bosses can sound attractive to anyone, even including people who love their regular nine-to-five jobs. However, the life of a freelancer does have its downfalls, and changes in how you do your taxes can definitely be one aspect of this life that you do not appreciate. If you have just recently traded in your past life of regular employment for a more relaxed and satisfying way to earn a living, you may be excited to see your business grow. But before you get too far ahead of yourself, you should make sure that you keep a few things in mind for the upcoming tax season.
1. An Accountant Is a Good Idea—Even though you may be just starting out with your freelancing efforts, the more organized you are through the year with your income and expenses, the better off you will be when you have your taxes filed. Therefore, hiring an accountant is a good idea right off the bat. An accountant will keep you in the know about making wise investments, what will be considered a deduction, and how you should be managing your income.
2. Consider Making Payments through the Year to the IRS—Way too many freelancers who are just starting out are blindsided when their forms are filed through tax preparation services and they are left with a ginormous tax bill that they have to pay. When no taxes are regularly being deducted from your incoming pay in small quantities, the bill can add up quickly. Therefore, it is a good idea to get with your chosen accountant to start making payments on your bill before it is due. The Estimated Tax Worksheet is used to determine what your tax liability should be so you can go ahead and start making payments.
3. Take Careful Note of Your Deductions—Deductible expenses can be a lifeline when you make a good portion of your income from freelancing. The IRS basically considers necessary purchases in your business as things that should be used to lower your actual profit margin. For example, if you are a freelance writer and you have invested in a new computer, the IRS would generally see this as a necessary investment in your business. It is best to keep a physical and digital file of all expenses that you incur in your freelancing efforts, and at the end of the year, bring everything with you when your taxes are being prepared.
Even though it can be scary to have to rely on yourself when it comes to pleasing the IRS, it is perfectly doable with the right professionals to help you out. keep open lines of communication between you and your accountant and keep a tax law adviser on speed dial just in case you have additional questions. For further help with your freelance taxes preparation, contact a representative from an establishment like Groskreutz, Schmidt, Abraham, Eshleman & Gerretse CPA.