Because last year I made the switch to being self-employed, my taxes this time around are going to be a little more complicated. As a result I’ve developed somewhat of what I call “Fear of Taxes Syndrome (FOTS).” I kind of am approaching this year’s taxes with a bit of a fly-by-my-seat approach—and it feels pretty messy. While I would much prefer to hide underneath a rock until tax season is done and over with on April 18th, that’s obviously not an option.
Although I’m working with an ace accountant who specializes in taxes and bookkeeping for freelancers (huzzah), I’m still feeling a little anxious, and hope I get through this year’s tax season. To stay on top of things for next year, here are a few things I vow to do differently tax-wise so I’m better prepared next time around:
1. I Will Know More About What I Can Write-Off
I would be doing you a great disservice if I told you I knew everything there is to know about tax deductions for the self-employed. Because I really don’t. I am still learning the ropes myself. The amazing Carrie Smith of Careful Cents write a pretty comprehensive post for Freelancers’ Union last year on tax deductions you should keep track of during the year. You can also check out the Freelancers Unions’ “Ultimate List of Freelancer Deductions.”
2. I Will Keep Better Track of My Tax Deductions
So it’s one thing to be fully aware of what you can write-off for taxes, and it’s another to actually keep track of them. A bare bones way I by using an Excel sheet. At first this method did the track, but lately I’ve found that I can only do so much. The thing is is that using Excel doesn’t link up to say, invoicing or tax return software. FreshBooks has a pretty cool feature where you can keep track of your expenses. You can also snap a photo of receipts on your phone so you can keep everything in one place. What’s also cool about FreshBooks is that you can try it for free for 30 days.
I really need to look into this for the year ahead as I’ve occasionally had an assignment where I bill for expenses and end up with a jumble of receipts to sift through.
3. I Will Stay on Top of Quarterly Taxes
FYI: Your estimated quarterly taxes are based on last year’s taxes. Here are the due dates for 2016:
+April 18, 2015 (for payment period January 1–March 31)
+June 15, 2015 (for payment period April 1–May 31)
+September 15, 2015 (for payment period June 1–August 31)
+January 17, 2015 (for payment period September–December 31)
Another thing to keep in mind that depending on the state you’re in, the percent you owe in each state isn’t an even 25 percent. For instance, in California it’s 30 percent for the 1st quarter, 40 percent for the 2nd quarter, nothing for the 3rd quarter, and 30 percent for the 4th quarter. Weird, I know.
4. I Will Keep My Business Stuff Separately
I have been slow boating it on this one. Once my taxes are officially filed and I can let out a celebratory cry, I will be looking into setting up a separate account for my business. I think it will be a lot easier to keep track of expenses and income that way. Plus if I use just one card for all my business expenses, it will be easier to see what expenses and purchases are tax-deductible.
I’m still not sure about expenses that can be deducted for business such as my cell phone bill and utilities. That’s a whole other story. I know that I’ll have to move some things around, such as direct deposits and linked accounts, but I’ll feel a lot better after the initial work has been taken care of. E-File also has a free version if you qualify for a 1040EZ form.
5. I Will Look Into Filing Taxes on My Own
I’m not sure if I’ll continue to use an accountant or try to make a go of my own on filing taxes. I’ve used TurboTax in the past and have absolutely zero problems with it. It has a free edition for federal taxes. Even though you start for free you usually do end up paying something to use its services.
TaxAct also has a free version if you have simple taxes and qualify for 1040EZ, so that’s another option to consider.
Who knows, I may fall in love with using an accountant and discover and never go back to doing my own taxes. But there’s a part of me that wants to see if I can pull off doing my own taxes.
By vowing to stay on top of my taxes this coming year, I’m hoping that things will be a lot smoother next time around.
FYI: I am no accountant or tax specialist. This is just info I found out on my own. So if you have specific questions be sure to ask a professional.
