This is an awesome guest post by Kathleen Kelly. You can read more about her at the end of the post! Write for us.
If you’re a freelance worker of any stripe — writer, consultant, artist, contractor — you’re likely in the habit of keeping a close eye on your finances.
Personally, I ran into major trouble the first year I filed my taxes as an independent contractor. I felt intimidated by the level of organization required. Not to mention the jargon. “Schedule C?” “Pension distributions?” Uhhh…I’m a 25-year-old child over here, okay?
Doing my taxes was a breeze as a “regular” employee. Fill in the blanks, a couple quick calculations, stick a stamp on it: done. I learned I wasn’t alone (90% of taxpayers need help when the season rolls around). More importantly, I realized everyone has to start somewhere.
I’m definitely still learning, but there are a couple of things I’ve picked up along the way…
1. Seperate Your Bank Accounts
You will want at least two bank accounts. One for personal use and one account strictly for business finances. It’ll be much easier to monitor and manage your transactions.
2. You Might Need a Pro
Don’t wait until you’re completely swamped to realize you need a bookkeeper or accountant. It’s important to know your strengths…and when to hire a professional.
3. Keep it Legal
If you earned more than $400 this year freelancing, you have to pay self-employment taxes (including FICA and Medicare). These vary by state, just like income taxes.
4. Learn About 1099s
If you were paid more than $600 by one client/company, technically they need to send you a 1099. They might not. Be prepared for this.
5. Keep Your Financial History
Hold on to your invoices, receipts and other paperwork for at least seven years. If that sounds like an analog nightmare to you, there are numerous apps for this exact purpose.
6. Categorize Your Expenses
Separate your expenses into distinctive categories. Labeling them all as “miscellaneous” can raise eyebrows and incur extra scrutiny from Mr. Taxman.
7. Know Your Deductions
If you have a home office, not only can that specific space be calculated for deduction from your taxes, that same percentage can be deducted from your heating, electricity and insurance bills.
8. Keep a Travel Log
When traveling (whether by your own car, subways, buses, cabs or airlines) you should keep an actual, physical ‘travel log’. Write it down. Yes, you can estimate it later, but if you get audited, the more records you have, the better.
When in doubt, quote Jay-Z: “I’m not a businessman; I’m a business, man…”
About the Author:
Kathleen Kelly spent years putting the “free” in freelancer. She now makes her living stringing sentences together, but you can occasionally find her moonlighting as baseball umpire…from the third baseline bleachers, of course.
Photo Credit: UnSplash