There are lots of wonderful things about working as a freelancer. In most cases, you can set your own hours instead of working on someone else’s schedule. You can take a day off whenever you like, as long as you don’t have any impending deadlines to contend with. And since you’re probably not getting paid by the hour (or at the very least, you set your own hourly rates), your earning potential is great.
But when tax time rolls around, being a freelancer might not seem so grand. There’s a good chance that you’ll have to pay in instead of getting a refund, and all of the tax forms you must file are enough to make your head spin. But if you play your cards right, you can minimize your tax liability, and you might even get some money back from the government. Here are some tips for staying organized and getting all of the deductions you qualify for:
* Keep accurate records of your income and expenses. There’s nothing worse than having to go back through twelve months’ worth of invoices and receipts and try to make sense out of them at the last minute. Keep an up-to-date ledger, and store paperwork in an organized fashion that makes it easy to find what you’re looking for.
* Check into the home office deduction. There are certain criteria your home office must meet in order to qualify, but if it does, it can give you a nice, big deduction. Specifically, you can deduct the full amounts of your rent/mortgage and utility expenses that are attributable to your home office.
* Familiarize yourself with the everyday expenses that are deductible. In general, you can deduct the purchase price of anything that is bought specifically for use in your business. You can also deduct the price of repairs of office equipment, business travel, interest paid on loans for office equipment, business insurance and much more. For a detailed list, visit the IRS website, or discuss any questions with a tax professional.
* Consider paying quarterly estimated taxes. This allows you to pay your taxes as you go instead of paying in one lump sum at the end of the tax year. And if you owe $1,000 or more in taxes for the year and fail to make quarterly payments, you could be subject to penalties.
* Pay special attention to depreciation rules. These affect how you are allowed to write off certain expenditures such as computers, copiers, fax machines and office furniture, and they have been known to change from time to time. Most office equipment is depreciated over a period of five to seven years, so you get to claim 14 to 20 percent of the cost each year.
These are just a few of the things freelancers can do to lower their tax bill. If you want to learn more, visit the IRS website or talk to a tax professional. By taking advantage of all of the tax advantages you qualify for, you can lessen the sting of self-employment tax.
