Many freelancers I talk to will tell me that taxes are one of their least favorite things to get ready for. It’s definitely not my favorite part of being self-employed, but it’s necessary. Through the years I’ve streamlined my system to make it more manageable.
Avoid Huge Stress Later and Gather Your Paperwork
If you haven’t already, have a place for all your important documentation and records. You don’t want to be scrambling to find exactly what you need come tax time.
The good news for freelancers is that there are some wonderful tools out there that can help you do that – from accounting software like QuickBooks to document storage such as Dropbox.
However having your data spread across programs can be a headache later, so choose only what you need to run your business. I made the switch to QuickBooks this year because I had several new projects that required me to be better organized. With a baby due early next year I also wanted a hassle free option.
Talk with others who are self-employed to get their recommendations on what works and what doesn’t for their business.
What Paperwork to Keep
You should always keep proper documentation for tax deductible expenses.
So what exactly should you keep in your files? Start by looking at what write offs you are claiming on your taxes. Some popular ones with freelancers include:
- Business use of home – If you do business out of your home (such as dedicated office), make sure you keep careful track of all related expenses.
- Automobile expenses – If you travel for work, keep a detailed travel log of all business related miles driven.
- Equipment/ Property depreciation – Do you have a laptop or other equipment that you use solely for business? You may be able to deduct the entire expense or depreciate it.
- Educational expenses – Savvy entrepreneurs like to stay on top of their game and sometimes that means brushing up on their skills and industries. If you take courses for your business, you may be able to write off the expenses on your taxes.
Besides deductions, look at possible tax credits that you can claim and keep tabs on them.
Thoughts on Maximizing Write-Offs
I’d love to hear from those who have been freelancing for years. How do you get organized for tax-time and optimize your tax benefits?