Freelancers and solopreneurs have a lot of freedom when it comes to their business pursuits. This is one of the reasons that many people are ditching the typical office job for a life lived on their terms. While the cons of working for yourself are few and far between, there is one thing that can cause confusion and stress, and that is taxes. No longer can you wait for your W-2 and know exactly what to do. Freelancers and solopreneurs are faced with having to do their own taxes. Receiving an unexpectedly large tax bill is not fun for anyone, so we're going to present the top tax tips to make things easier.
1. Find a tax pro
If you work for yourself, it makes sense to find a knowledgeable bookkeeper who can assist and advise on taxes. Someone who has eyes on your business and can catch errors AND find overlooked deductions for you. When you're looking for a bookkeeper, make sure you explain your business inside and out so they know how best to serve you. Look for someone with a degree in accounting, and it's also helpful to have someone who knows cloud accounting systems well. This will reduce time and costs on your part and make outsourcing your bookkeeping tasks one of the best business decisions you've made.
2. Pay your estimated taxes quarterly.
Ask your bookkeeper or accountant to estimate what your tax burden could be for the year based on your income. If you don't understand taxes, you will probably miscalculate this and be subject to penalties. Don't forget, you now have to pay taxed for self-employment, so as a freelancer or solopreneur, your tax bill will be higher than a traditional employee.
3. Send digital copies of your receipts to your bookkeeper
If you get into the habits of keeping your receipts for each week and then sending them digitally to your bookkeeper, you won't get behind or miss something. Receipts can get lost, damaged, faded, and torn, so it's best to immediately record them in the cloud. Your bookkeeper can then attach them to expenses in Quickbooks or another system. One less thing you need to worry about come tax time.
4. What to do if you also have a W-2
Many freelancers do what they do as a side gig in addition to being an employee, perhaps with several W-2's. If this is the case, or if you're filing a joint return as a married couple, you might get away with quarterly taxes by increasing withholding for W-2(s). For example, if you previously claimed 2 exemptions on your employee job, reduce it to 1 or 0. Better safe than sorry, so put at least 15-25% of your earnings in a separate bank account (or don't spend that reserve) so you have money available when it's time to pay.
5. Expenses for training, seminars, and improving skills are deductible.
Many freelancers and solopreneurs are familiar with online courses. Conferences, seminars, and any work-related training can be deducted if certain requirements are met. Basically, it must be directly related to your industry (so if you're a freelance graphic designer, you can't deduct a course on reupholstering furniture).
6. Record and systematize
Setting up a system for recording your expenses and income will save you untold hours in re-reviewing everything over the past quarter or even, year. No only that, you'll be spending a large amount of time and money if you happen to be audited due to incomplete or inconsistent records. Hiring a bookkeeper to handle your paperwork can be a lifesaver in terms of wellbeing and allowing you to focus on your business.