5 Tips For Filing Your Taxes Easily

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5 Tips For Filing Your Taxes Easily

Posted March 17, 2010 in Accounting/Bookkeeping, How-To

One thing that scares a lot of professionals away from becoming freelancers is the thought of doing taxes.

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
Software
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!

Your Thoughts

What problems do you have with taxes? Do you have any tax tips? Please share!

Image by Cleaver

About the author: Amber is a freelancer with over 10 years of experience and specializes in clean, semantic and valid HTML5, CSS3 and Wordpress development. She also writes a web development blog at www.amberweinberg.com and just launched a web app for developers at www.codesnipp.it.

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39 Comments

Jordan Walker
March 17th, 2010 at 8:52 am

Great write up Amber, I just finished my taxes and am sending them off Saturday.
Katie Benjamin
March 17th, 2010 at 9:29 am

Thanks so much for these tips, Amber. As a freelancer still in the learning stages, I really do find this task daunting. I didn’t even know some of the items you listed could be written off!
Susan Johnston
March 17th, 2010 at 9:36 am

Hard to believe that Tax Day is now less than a month away, isn’t it?

Here’s the strategy that has saved me the most time: most of my business expenses are things I’ve purchased online (ink cartridges, conference fees, etc), so I create a folder in Gmail and label it “business expense 2010″ or something along those lines. Same with charitable donations. That way it’s easy for to keep track of those expenses and tally them up at the end of the year.
Ed Gandia
March 17th, 2010 at 10:10 am

Amber – I agree that organization is a must! However, I believe freelancers should seriously consider getting the help of an accountant. If you REALLY like working your taxes (some people do, and I respect that), then by all means do it yourself.

But if you find it boring, wasteful, frustrating, scary… then look into hiring accountant. Don’t look at the costs one-dimensionally. There’s a huge benefit associated with their fee. It’s not just doing the work… it’s taking this monkey off your back, freeing up time to work on client projects or on activities you truly enjoy (more time with family, more time off, etc.)

Plus, good accountants (those who work with a lot of solo professionals, so they understand our world) make it their business to stay on top of new tax laws and updates — things that would take forever to do on our own. That alone is a HUGE benefit.
Jeff Woodruff
March 17th, 2010 at 10:55 am

Great Article Amber. I currently only freelance part-time and taxes are one aspect of the profession I’m still trying to fully grasp. Since I’m currently only able to freelance part-time, a majority of my projects have been under $600 because they were smaller projects that I was able to balance effectively with my day job workload yet still have a few going at once. However, I have taken on some bigger projects which I’ve already filed and submitted the appropriate forms for. I’m not fully clear on what to do about my smaller projects though…I have a friend who’s a CPA and told me that I’m only required to file for jobs that exceed $600. He’s been wrong before so I think it’s probably best to ask someone who’s an actual freelance developer. I’m also curious how much I can really write off considering my home isn’t my main place of employment. Any input it obviously greatly appreciated. Thanks for the sharing.
Natalia M. Sylvester
March 17th, 2010 at 11:04 am

These are all great points and tips! I do agree with Ed, though, that getting an accountant makes a difference. My accountant takes care of my quarterly payments in addition to my yearly ones. It’s not always a simple process, especially if you’re filing joint taxes, you’ve bought a house, one of you is in school, etc. Of course it’s different for everyone, but hiring an accountant is worth considering.

Plus, you can deduct their fees as a business expense.
Beth McLain - Web Designer
March 17th, 2010 at 11:18 am

Nice Round up… I was only aware of few things that i can write off. Becoz am not much in to accounting and stuff. Thanks to you Amber for this information. Really Helpful.
Design That Rocks
March 17th, 2010 at 11:55 am

Great post Amber…enough cannot be said about taking care of this aspect of freelancing. I also agree with Ed’s response about hiring an accountant…at the end of the day its great to take all of that info to them and be assured they know what they are doing with it all.

Thanks for the tips!
Erica Klosterman
March 17th, 2010 at 12:44 pm

This is a great article, thank you! I have had a couple questions concerning taxes that have yet to be answered. When you’re doing taxes, how does the IRS determine the percentage of business expenses you write-off as returnable? Can you write off expenses if you do freelancing on the side? If so, h
ow do you become eligible?
Amber Weinberg
March 17th, 2010 at 1:04 pm

@Jeff I believe if you make over $600 in self employment income, you have to pay taxes on it, doesn’t matter if it’s $50 from one guy and $300 from another etc etc. Otherwise, we could all evade taxes by keeping billing under $600 ;)

@Erica You have to determine the percentage of personal vs. personal in your office, and all expenses are based off that. So if you figure you use your office for business 25% of the time, you can write off 25% of the office utilities, expenses etc etc, which are based off square feet of the office, so if the office is 10% of your home in square feet, you can write off 25% of that 10% for your business. Sounds confusing but programs like turbo tax do all of it automatically, you just enter the sq footage of your office and the amount you use it for business.
Jeff Woodruff
March 17th, 2010 at 2:30 pm

@Amber Haha, I didn’t think such a blatant loophole could exist which is why I decided to not fire clients when I reached $599 worth of work ; ) I just kept reading different facts so I wasn’t sure. No matter how much I make I also put 20-40% in an interest bearing savings account as a safety net.

I’ve also been reading up on what I can write off on my taxes. Apparently since my freelance “office” is actually part of my living room, I’m going to have a hard time trying to write that off. All the other things you mentioned were good to keep in mind though.
The Tax Club
March 17th, 2010 at 2:45 pm

This is a great article and the tips are excellent. In my opinion number 1 is the most important. Organization is key when it comes to filing taxes. If you keep everything together and organized it will make taxes so much easier. Tip number 5 is a very close second. So many people, myself included, wait until the last day to file taxes. This add so much more stress and makes it a lot more difficult. If everyone were to file these tips it would make filing so much easier.
Anything Graphic
March 17th, 2010 at 9:38 pm

Great post Amber. Love the expenses you listed that we can right off. I knew about the gas mileage, but keep forgetting to right that down. Now I’m printing this for future reference! Thanks!
That Graphic Guy
March 18th, 2010 at 9:31 am

good read! The truth is if we took 30 mins after each job and wrote down a little tax info tax time would be a lot easier. Good luck all with your taxes.
Julie A. Maahs, EA
March 21st, 2010 at 6:06 pm

If you bill a single client more than $600 in a year, they have to issue you a form 1099-Misc, which reports that income to the IRS. However, you must report ALL your self-employment income on your tax return. If you earn more than $400 (gross) from self-employment, you must file a tax return, even if you have no other income. (You may end up with a negative number, meaning no taxes are due.)

One important thing not mentioned in this article: There are expenses and there are assets. Learn to tell the difference. An electric bill is an expense; a new computer is an asset. The IRS has charts, called “depreciation schedules” for different kinds of assets, and those charts determine how much you can claim as an expense each year for that asset. So, say you spent $1000 on a new computer. IRS says a computer lasts five years. This is not negotiable. The first year, you are allowed to deduct 20% of your $1000. Assuming the computer is used ONLY for business, you would claim a $200 depreciation deduction.

I do this professionally, and I strongly recommend that you talk to a professional, at least the first year. If only to get your depreciation schedule set up. If you don’t need full accounting services, you might consider an Enrolled Agent, which is someone who has proven comprehensive knowledge of tax issues without necessarily earning a degree in accounting. My new clients generally get an hour or more of explanation of the basic records they need to keep to support their tax return. For that reason, making a consultation appointment outside of tax season would be a good idea.
Julie A. Maahs, EA
March 21st, 2010 at 6:09 pm

One more thing: Keep a mileage log! That is required by law, if you’re going to take mileage.
Julie A. Maahs, EA
March 21st, 2010 at 6:11 pm

Your home office does NOT have to be a separate room, so long as the part of it you’re claiming is used regularly and exclusively for business. Regularly and exclusively. That’s a pretty tough standard.
CarCheckup
March 22nd, 2010 at 4:14 pm

I think a lot of contractors leave money on the table by keeping incomplete mileage logs. At $.50/mile for 2010 if you miss a few trips you can leave a substantial amount of money on the table.

Remember that almost everything you do in the course of business the requires auto travel counts. There are also deductions for miles traveled for charity and mileage traveled for medical care (but at lower rates then business mileage)

Here is a link to the IRS Mileage deduction doc:
Mileage deduction for 2010 – http://www.irs.gov/newsroom/article0,,id=216048,00.html

Also, instead of paper logs the IRS is also accepting electronic logging: According to the IRS:

“If you prepare a record in a computer memory device with the aid of a logging program, it is considered an adequate record.”
-IRS Publication 463 – ‘How to prove expenses.’ http://www.irs.gov/pub/irs-pdf/p463.pdf

We’ve built an IRS compliant system that takes the pain out of tacking business mileage that you may find useful. It’s cost effective and requires no huge monthly fee. Plug our device into your car, drive as usual, then at the end of the day or week, take the device to your PC, log into our website, and easily categorize your travel.

Trip Start time, End time, Miles traveled, and a data field to track the business reason for the trip so you can stay IRS compliant.

At the end of the quarter or year, a few mouse clicks and you have a report to hand to your account that verifies your business mileage deduction.

You can learn more about our solution at http://www.carcheckup.com/index.php/page-static-p-Business_Mileage_Tracking

Also, as a side note…our system can tell you why your check engine light is one, and help monitor driver performance.

Hope this helps!

Travis
stonecrafted4u
April 7th, 2010 at 12:36 am

Hi, I’m new here and won’t actually be adding any items until AFTER April 15th, because in ‘real life’ I’m a taxpreparer. I’ve worked for 10 years in a tax office and the one thing that floors me is how much stock people put in what other people tell them. Please if it’s your first year hire a professional!! By professional I don’t mean just walk into any neighborhood retail type tax office and announce you are ready to do your taxes on April 14th. Do your homework, find someone who specializes in Schedule C returns and find someone who is not willing to take chances with questionable deductions. I have seen preparers come and go who will allow all kinds of deductions and will permit their clients to take major losses year after year without informing the client that a business that fails to make a profit in 3 of 5 years is considered a HOBBY by the IRS. Hobby income is not the same as business income. If your eyes are glazing over it’s time to call a professional! Also be careful of certain expenses… if your cellphone plan is 100 dollars a month limit your deduction to 50% useage. Don’t try to take 100% it’s not worth trying to convince someone you NEVER talk on your cell for anything but business. Sorry didn’t mean to jump in and start preaching…Good records mean good tax returns and happy preparers! I will charge someone less who helps me to help them. A little more than a week and I’ll be done with taxes for a few months ;until time to recertify and retest!! Good luck everyone
Julie A. Maahs, EA
April 7th, 2010 at 2:22 am

One small quibble, stonecrafted4u: The 3 out of 5 rule is only one of a set of nine guidelines. It does not automatically classify your business as a hobby. Others include whether there personal pleasure is a significant factor, and whether businesslike books are kept. If one of my clients is failing the 3 out of 5 rule, I pull out the list and discuss them with the client before determining whether to consider it a hobby or not.

Aside from that, I completely agree.
CarCheckup
April 8th, 2010 at 7:18 pm

@stonecrafted4u- You cannot possibly be more right. We had an accountant for the last 8 years that we stuck with. This is the first year we went with a large firm. They spent two weeks and $15k fixing his errors. Now we have to refile that last 3 years worth of taxes to get it fixed :(
There really is a big difference between someone who tells you they know what they are doing and someone that actually knows what they’re doing.
I’d also point out, if you’re a freelancer and you’ve formed a LLC for protection, then you really should make sure your accountant knows the ins and outs of LLCs. Otherwise you could end up in the same situation we’ve been in. :(
NOT fun.
Lisa pahl
April 9th, 2010 at 2:35 pm

Does anyone have any suggestions for business software for the mac that works well?
Nikki May | Web Content Writer
September 12th, 2010 at 7:46 am

Thanks for this valuable info on filing taxes.

As a freelancer, I get busy and I am not good with paperwork…every year folling my taxes is a stress.

Thanks for these tips.

Nikki May
louis
September 29th, 2010 at 2:47 am

What gorgeous projects you created. Especially love the Enya with the punchinella touch.
Brett Widmann
November 2nd, 2010 at 11:06 pm

This is a very helpful article! Thanks for posting.
Paul
September 7th, 2011 at 10:56 am

I hate doing my taxes, I just got an accountant in the end!

But great tips though, if I would of had these a while back I might not of got an accountant! lol

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