Taking care of your taxes shouldn’t be scary. Especially if you’re a one person business, filing your taxes can easily be done in less than 30 minutes.
In this post, I’ll share some of my tips for filing taxes, as well as some great tools to help make tax time painless and easy.
1. Keep Everything Organized
At the start of each year, I grab a manila envelope and label it with the current year. In this envelope, I keep medical, business and home improvement receipts that I can use to write-off on my taxes. At the end of the year, I also use this envelope to store all the 1099’s I get from agencies I work with.
For all my business receipts, I record these in my client billing app (I use Billings, but there are other great ones out there). Client billing software is great to use around tax time because it allows you to track all your income, expenses and fees in one place.
Most apps also come with a powerful report generator, so you can quickly view everything at once. This is great, because when it’s time to do taxes, everything is together and organized for you.
2. Use a Tax Program Made for Businesses
I don’t want to spend the money on hiring an accountant or tax professional, but I also don’t want to spend ages on filing my taxes, or make a mistake resulting in me over or underpaying them either. That’s why I recommend using some tax software and filing your taxes electronically.
Personally, I love using TurboTax For Business. It quickly walks you through every part of filing your taxes and helps you find all your write-offs. It even does the math for you when calculating home office write-offs (more on that below). And, it only costs around $70 to use.
3. Print Your Reports
Remember the reports we talked about in the first tip? If you’re already using some client billing software, now’s the time to print those handy reports. The two reports I recommend printing are:
- Payments By Client–This report is better than a general income report, because it lists the income separately by client, which allows you to easily mark the clients off that sent you a 1099, making sure that you don’t count the client’s income twice and overpay!
- Expenses–Billings doesn’t have a strong interface for expenses, but if yours does, try to download a report that lists the expenses by type. This will save you time since you won’t have to sort them manually, since expenses are claimed by type in your taxes.
4. What Can a Freelancer Write Off?
The cool thing about being self-employed, is that you can write everything off that you spend on or while doing business.
Here’s a handy list of some of the things you could write off:
- Rent, utilities and renovations to your home office (taken as a percentage of the whole house) or all your expenses for your separate office
- Care expenses or mileage if used for business
- Internet, landline and cellphone
- Expenses incurred while traveling for business
- Convention fees and expenses (Barcamp, SXSW, etc)
- Business books, tutoring or mentoring
- Printers, computers, monitors, faxes and other electronic equipment
- Paper, ink, stamps, envelopes and other supplies
- Paypal, Google or other expenses incurred while collecting payment
- Stock photos, templates, etc
- Payments you’ve made to over freelancers or contractors
- Advertising expenses
- Printed materials
5. Actually Pay Your Taxes Before Tax Time
While most of us probably prefer to pay our taxes once a year, and normally after we find out the actual bill, this makes Uncle Sam jealous. Therefore, if you make any kind of real money and haven’t paid quarterly payments, you’ll be subject to a pretty hefty fee.
So make sure around the beginning of the year, that you download and use Form 1040-ES (PDF) to pay your quarterlies. This will also dampen the amount you’ll owe when you file.
In the same note, make sure you set aside money for taxes throughout the year! I once talked about setting up an automatic budget and the very first envelope I have money go to is taxes.
With every business deposit you make, you should put 20-40% away for taxes. I like to keep mine in a savings account to earn a bit of interest until it’s due, and also to stop me from spending it on something else.
*Disclaimer: I’m not a tax professional or licensed to give tax advice, so make sure you consult a professional before following this advice!
What problems do you have with taxes? Do you have any tax tips? Please share!
Image by Cleaver