More and more corporate workers are choosing freelance over the normal 9-to-5. That’s not surprising since freelancing sure does give one more control over their time without sacrificing their work. Sure, freelancing has its ups and downs, but much like any other types of job, adjustments are to be made.
One task that freelancers have that they likely never got their hands on, way back as a corporate employee, is handling and filing their own taxes. Chances are it isn’t their favorite part of working as a freelancer as it can be a headache to deal with, but it is a must to accomplish.
Take control over your taxes and know the basics before you turn them over to an accountant if you plan to hire one. Here are some basic tips you ought to know:
Report all your relevant sources of income
Whether you get paid per project, have a 6-month long contract, or employed full-time, list down where and how much income you receive so when it comes to questioning by the IRS, you have everything in place. This should also help in filing your audit easier and clearer.
Keep ahold of all receipts and documents
Documentation is important especially now since you’re handling everything by yourself. Keep a clean record of all your receipts of income, expenses, and write-offs. If it makes it easier, keep an organized spreadsheet of everything and properly categorize your record for easy-tracking (e.g. what the freelance project was, how much you received from it, and if there were business expenses shouldered by your).
Have a well-planned tax strategy
When you’re employed, taxes and other contributions are automatically deducted from your income. Your accounting department takes care of that. However, when you start going freelance, these things aren’t deducted from your pay initially; you take it upon yourself to handle and budget your taxes and contributions. Given this, you need to have a solid tax and budget system that calculates your estimated taxes before you “take home” your income and expenses.
Separate your personal from your business account
This is probably one of the important things you should do when you turn to freelancing: separate your personal bank account from your business account—this will make life easier for you!
Having separated accounts for your income as a freelancer allows you to see your expenses, how much money comes in and out and where it goes; it makes tracking your finances easier and sees clearly how much revenue your business is getting.
Claim all eligible deductions
Did you know that you can also qualify for tax deductions?
Yes, you’re a freelancer and no, that doesn’t mean you don’t have a “real” job. Whether you’re a freelance photographer, writer, makeup artist, and the likes, you can claim depreciation for your business expenses (e.g. office supplies, internet, and the works).
Reach out to a tax professional
Whenever you need to especially if you don’t know where to start with your taxes, you can always reach out and get consultations with a professional. They can help take off the burden and worries you have and take over it themselves. They’ll help guide you throughout the process so you can understand how taxes work for freelancers, what you can do to maximize your deductions, and how you can make filing your taxes easier.
Whenever you find yourself unsure, you can always ask. Hiring a professional may cost you a pretty penny, but it’s worth it for the convenience.
Figure out how to manage your deductions, savings, retirement, and other expenses. You may be a freelancer but you’re not excused from paying taxes.
About the author: Chie is a daytime writer for Depreciator – Tax Depreciation Schedule, a company dedicated completely to Tax Depreciation Schedules that aids the Australian property market.