Tax season can be stressful enough, but if youâ€™re new to freelancing it can feel all the more complicated. Now that you donâ€™t have an employer deducting your taxes for you, youâ€™ll need to keep track of all your income and expenses yourself. But donâ€™t let that overwhelm you. With a little planning and a plenty of recordkeeping, paying taxes doesnâ€™t have to cause you stress. Below are five straightforward Denver tax tips that will help put any freelancerâ€™s mind at ease:
Keep Business and Personal Separate
The first step you should take once you start freelancing regularly is to open a separate checking and savings account for your business. Not only will this make your taxes easier, itâ€™s also easier to prove business expenses in the unlikely case of an audit.
Set Aside Money for Quarterly Taxes
Now that youâ€™re on your own, youâ€™re going to need to cover 100% of the state and local taxes you owe. This could come with huge sticker shock at the end of the year if you donâ€™t make estimated tax payments quarterly. The paychecks you used to get from your full-time employer had estimated taxes taken out before they got to you. Similarly, your best bet is to deduct 25-30% anytime you receive income from one of your clients and set it aside to pay these quarterly taxes. Out of sight, out of mind.
Know Whatâ€™s Deductible
Deductions are the silver lining to being responsible for 100% of your own state and local taxes. But how do you know what you can deduct? If itâ€™s a required, typical expense associated with running your business, chances are it can be deducted. This includes any equipment you use, your office space, utilities and web hosting fees, office supplies, insurance, travel expenses, and much more. These deductions are filed using the IRS Schedule C
form. Itâ€™s a smart idea to become familiar with them before youâ€™re ready to file taxes.
Write Everything Down
It may seem excessive, but keeping very thorough records will go a long way in not only helping your taxes run smoothly but also making sure you get every deduction youâ€™ve got coming. Coffee with a client? Write it down in your expense log. Driving across town to meet with a client? Write down the miles in your travel log. Just cashed a check from a client? Add it to your income log. And donâ€™t forget to file any and all receipts and bills. No one wants to be frantically searching their office for a missing receipt in order to file taxes.
Track Down Those 1099s
Any time you make $600 or more from a single client, youâ€™ll need to report this income. These clients should give you a 1099 form that lists how much theyâ€™ve paid you over the last year.
A little bit of planning goes a long way when it comes to making tax time headache-free. While itâ€™s easy to feel overwhelmed, weâ€™re here to help. Contact us about our Tax Planning Services
. Not only can we can help you prepare before taxes become a hassle, but we can also help you keep more of the money you earned in your business.