If you’ve decided to make 2014 the year that you quit your 9-to-5 job in favor of making your freelance work your full-time focus, I applaud you on taking that brave step forward. Life as a freelancer affords plenty of flexibility in making your own schedule and creating a laidback environment to work in, but it also requires a lot of inner stamina. You need to be able to keep to deadlines, especially when it comes to filing taxes. As April 15th gets closer, it’s easy to feel overwhelmed at the idea of doing your taxes for the first time without a W-2 stub handy from that former 9-to-5 job to guide you through the process in under an hour. Don’t panic though – if you’re a freelancer filing your taxes for the first time, here are a few tips to make it easier all around.
Organization is key.
This is standard advice I give everyone filing their taxes, regardless of whether or not they’re freelancers, small business owners, seniors, or students, but it always rings true. You have to be and stay organized with your paperwork and receipts throughout the year. If you don’t think you’ll be finished in time, you may opt to have your taxes worked on by a professional and they’ll want all of your documents stating where and when (and even with whom) you earned your money. If you received at least $600 for your freelance services from a client, you’ll receive Form 1099 which will report a full summary of the payments you received and classify each payment in separate boxes on the form. For freelancers verging more on full-time contractor work, you’re considered self-employed by the IRS, and will need to report your income on a Schedule C Form.
What can I deduct as a business expense?
Business cards, online advertising, the cost of plane tickets for travel, Post-It notes and pens, computer repairs as well as the computers themselves, and business insurance are all just a few deductions freelancers are eligible for. Remember the golden rule that a business expense must be ordinary and necessary to qualify for a deduction. If you paid rent on a studio to write or design out of, that’s deductible. Your health insurance, on the other hand, is not. And take care with expenses when it comes to meals and entertainment for business purposes as this can easily trigger a potential audit with the IRS – for example, deducting a week’s worth of dinners out at expensive French restaurants with over 25 people at your table is definitely going to wave some red flags.
Stay on top of estimated quarterly payments.
Saying goodbye to the corporate world also means that instead of breezing through a W-2 form that automatically withdrew your estimated taxes, you’re now figuring out how to pay your own estimated taxes each quarter. Use Form 1040-ES to file – your four payment due dates throughout the year will be slated for January, April, June, and September. This same form also helps you figure out how much your estimated tax will be by using the 2014 Estimated Tax Worksheet, the Instructions for the 2014 Estimated Tax Worksheet, the 2014 Tax Rate Schedules, and your own 2013 tax return and instructions. The big bonus to paying in quarterly payments is that your taxes will be paid off in small amounts rather than all at once in a (potentially) huge sum that you may not have on hand the moment you’re filing. Always keep a savings safety net in place to catch you for moments like these – for a freelancer going full time, it’s an absolute must!