As a freelancer or sub-contractor, you’re responsible for running a business, your business. That means you’re self employed and not only will you be paying income taxes, but self-employment taxes as well. Aside from that, you have to keep all the records for your business, and this includes the freelance expenses and income. That said, here are the steps that would help you prepare your taxes as a freelance.
1. Know Your Filing Status
A person who’s self-employed and not committed to a particular employer or a long term client is known as a freelancer. However, this isn’t a term that you can find in the “tax code.” Thus, you’d be better if you’d refer yourself as a self employed or an independent sub-contractor. Knowing how to prepare your taxes the right way would help you avoid experiencing tax fraud in the future. Though, if you’re already facing a tax allegation, it’s important for you to figure out why you should be hiring a lawyer to help you with your case.
2. Itemize and Record Your Business Expenses
Although there are available tax deductions, a freelancer should know the rules surrounding it. For instance, in order to qualify for a home office deduction the room should be solely used for business purposes. Those who have a dedicated home office could also deduct a portion of household expenses, such as mortgage interest, utilities, and rent from their taxes.
3. Maintain a Solid Record-keeping
As a freelancer, there’s always the risk that you’d be scrambling every tax season, especially those who fail to keep a record of their income and tax-related payments. If you’re one of them, make it a point that you’d encourage yourself to set up a solid-record keeping system. That way, everything will be well-organized.
4. Consider Purchasing Some Business Related Tools
As a freelancer, it’s worth considering to buy a series of business tools and supplies before the year ends. This can come in handy during tax deductions. Though, this doesn’t mean you should carelessly spend your money just to rank up your tax deductions. However, if you’re thinking of having a purchase for your business, then do so. The last three months of the year are usually the best time to invest in a new software, because you can deduct the software payments in the following year.
5. Struggling? Don’t Be Afraid to Call for Help
No doubt, the first year of any business, even for freelancers can definitely be challenging. You’ll be spending a lot, and that’s not all. You have to record everything and calculate your taxes. For those who find this difficult, or don’t have enough time to do so, hiring a CPA can be worth the cost. A qualified CPA could give you the assurance that you’ll be able to enjoy your possible tax deductions to the fullest. Their goal is to guide you on how to set up your taxes and the best ways to lower your tax bills. Not just that, considering the fact that these professionals do ask for a fee, you’ll be able to include it in your tax deductible as well!