There are many perks of working as a freelancer, one of the best being that you set your own schedule and work anywhere in the world. But the least favorite part in any freelancer’s career is tax season. Tax season means needing to keep track of all your business expenses and make an estimated tax payment each quarter. You’ll also have to calculate your exact income if you’ll be subjected to income tax and self-employment taxes. It’s bad enough that you pay the full amount of self-employment tax since you’re both the employer and employee, but at least you’re entitled to tax deductions. If you keep a good record of those, you might end up saving up to 50% of your tax liabilities. Navigating tax season with less stress comes down to how well you track your expenses and taxes, so here are a few tips on how to do it. What counts as an expense? Any money you spend to keep your business afloat counts as an expense. However, these expenses must be ordinary and common, which means they are recurring and related to your business. For example, a website that displays your services as a freelancer is considered business-related, so any paid fees are business expenses. But if you’re using the website for personal matters, then it shouldn’t be recorded as an expense. It’s better to separate your personal and business finances to avoid any confusion. Other expenses include your rent, for example, but there are things to keep in mind. If you’re working from home, you should calculate the percentage of your home dedicated to your business. That way you’ll be able to easily calculate a percentage of your home bills and count them as a business expense as well. Extra expenses like phone and internet bills, insurance premiums, office supplies, travel expenses, and entertainment such as business dinners can all be counted as business expenses, which can be deducted from your gross income to calculate your taxes. How to track your expenses Ideally, you’ll write down, or somehow record every expense as you go to avoid piling them up until tax time. A simple spreadsheet is sufficient to keep track of your expenses and income. You can also use accounting software for a more automated approach. Some keep all receipts in a box and, better yet, take photos of them regularly and store them in a folder on the computer. Many receipts are sent by email, so it helps to keep them all saved up in a folder as well. Having digital copies of all your receipts is a good backup to ensure you don’t lose any of them. Keeping all these records organized and in one place will come in handy while calculating your taxes. Tracking your taxes Remember to set aside some money for your taxes; paying a little amount every month is a lot better than making a hefty payment in tax season. You can hire an accountant to keep track of […]
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