This is a guest post by Chloe Trogden.
As a freelance writer, working for yourself is one of the biggest perks and one of the biggest drawbacks. You call the shots — when you work, where you work, how you work — but you are also responsible for all the risk, and you’re responsible for all the benefits you would have received at a job. These include health insurance, a 401(k), and taxes. Yes, taxes.
Working for yourself, you have to keep up with paying your taxes yourself. No one is there to take them out of your check and send them to the government for you. Finding out what you have to pay and when you have to pay, and then keeping up with all the paperwork along the way, can be a lot of work. Here are a few tips for how you can keep up with your taxes as a freelance writer:
Know Your Deductions
There are a number of expenses that you can deduct from your taxes as a freelance writer, more so if you maintain a home office. Some possibilities include:
- Internet service
- Phone service
- The purchase of a computer or other equipment
- Rent, electricity or water service for your home office (usually calculated as a percentage of your home expenses, based on square footage)
- Lunches with clients
- Mileage to and from events and interviews
- Payments for health insurance premiums
What you can deduct will vary according to your business model. It is worth consulting with a tax professional or small business lawyer to understand what deductions are available to you.
Keep All of Your Invoices
Your invoices to clients provide a record of the work you did. Not only can you use these invoices to match up with your receipts to provide a complete record, but you can also use the invoices to write off your losses. If a client doesn’t pay you, you can use the invoice to deduct the expense from your taxable income, reducing your tax burden.
Make sure you keep all of your invoices in a folder on your computer or a binder.
Keep All of Your Receipts
Your receipts will provide the information you need to show your earnings and your business expenses throughout the year. Not only will they help you to file, but they will also help you to provide proof of what you claim if you ever get audited.
Make sure you organize your receipts for easy filing later. You can create a filing system that separates your receipts by client, by type of expense, or according to another system that works best for your business.
Keep Quarterly Spreadsheets
Sorting through a mountain of receipts and invoices at the end of the year can be a time-consuming and tedious process. You can make the work easier by managing it as you go along throughout the year. Keep spreadsheets of all your payments and expenses, and update them every quarter. If your business is really thriving, you might want to consider updating your spreadsheets more often, perhaps even monthly or weekly.
Make Quarterly Payments
Since no one is deducting taxes from your pay, you have to do it yourself. You can’t just set the money aside in a savings account and pay it out at the end of the year in one lump sum. If you do, you could face penalties for underpayment of your taxes. Instead, you must schedule quarterly payments based on your estimated taxes. If you are unsure what your estimated taxes are, you can speak with a tax professional or consult the tax tables.
As a freelance writer, you are responsible for your own success and you are responsible for your own taxes. By following these simple steps throughout the year, you can ensure that tax time is a breeze and that you aren’t stuck under a mountain of paperwork for weeks, only to find that you owe a bunch of money. As always, you should consult with an accountant to get advice tailored specifically to your situation to determine best practices.
Chloe Trogden is a seasoned financial aid writer for a large student resource website. Her leisure activities include camping, swimming and playing her guitar.