Even if tax season doesn’t start for another month or so, filing earlier means you’ll be less stressed and be able to repay your interest-free loan to the government more quickly once you file your return. Also, you need to track expenses of yours to find out the exact numbers of your taxes. Here are some essential tips for filing income and costs for the self-employed, whether you are newly self-employed or more intensive with your tax return.
Make Your Expense Tracking
First off, you need to create an expense log in your office that matches the Internal Revenue Service’s business expense categories. This will ensure that your expenses match when you file your tax forms. For self-employed income, the IRS expense categories are advertising, business insurance, and motor vehicle expenses. Depreciation, home office expenses, meals, entertainment, office expenses, and supplies. The last item is business gifts, industrial fees, taxes, research, and education.
Generate the Home Office Expense
Business enterprises spend thousands of dollars each month on rent, utilities, maintenance, and other expenses. You can deduct part of your mortgage, rent, utilities, and other bills if you work at home. This is probably the largest or second-largest deduction from their income for most freelance writers who work at home. It’s vital that you know exactly what your income is and that you maximize it.
Hire a Bookkeeper
If you’re serious about freelance writing, you can expect to make between $50 and $100 an hour in your third year of business. Bookkeepers are much cheaper than that, and most accountants are even more affordable. That means you could be losing money if you don’t hire professionals to do the work for you. Not to mention, professionals can get more deductions than you can get on your own. However, this is only true if you spend more than an hour preparing payroll or tax returns. If you only write for a few hours a week, it’s cheaper and more convenient to do it yourself. As I said, do the math and figure out what makes sense.
Keep Track of Your Projected Tax Bill.
As a freelancer, you have to pay 15.3% of your income to Social Security and Medicare. This is in addition to all the standard tax brackets you may fall into. You should save based on your best estimate of your taxes. You can spend more if you have saved too much. Don’t save too much. These checks can make a real difference, and interest is available regardless of how little you have.
Be Sure to Utilize W-2 Withholding Carefully
Although this almost always requires the help of a tax advisor. However, if you have both earned income from employment and self-employment as a freelance writer, your income and withholding can work together almost miraculously. If you file your tax return jointly, this applies if your spouse works as a W-2 employee and you work full-time as a freelance writer. It’s worth consulting a tax advisor if you have W-2 income.
Talk to the IRS
If you have financial difficulties, you can make a phone call or write a letter to the IRS. This is especially true for the types of tax bills that sole proprietors may see. The IRS has been very accommodating since they adjusted their functions in the late 1990s. They are willing to work with you. All you have to do is ask.