Between calculating and saving for quarterly estimated payments, organizing a year’s worth of receipts, and figuring out your deductions, filing taxes as a freelancer can feel like a full-time job. But with the help of some easy tricks and a few apps, you can go back to focusing on your projects, not potential penalties, at tax time.
1. Hire an Accountant
Clients hire you for your expertise, so why not hire an accounting expert to work for you during tax season? The benefits of this expense are twofold for freelancers, says Steve Freshour, VP of operations and CPA at small business lender Dealstruck. “It will save them headaches and hassles not only if audited, but when it comes time to apply for business financing their documentation is ready to go.”
Tom Sutkins, a tax preparer based in the Philadelphia area, recommends using the IRS website to find credentialed tax preparers. Enter your zip code to find a list of pros in your area.
2. Know Your Deductions…
Self-employed people can deduct the following expenses, Sutkins says: Internet bills, invoicing software, taxes and licenses, commissions and fees paid, insurance to protect you from litigation and liability, equipment rented for use in your business, legal and professional fees, and other miscellaneous expenses, like professional training.
You can also deduct the depreciation of assets: Think the wear and tear on your home office space or the software you use for income-producing purposes. You have to meet certain criteria for this deduction, so talk to your accountant or check this section of IRS.gov to figure out whether you qualify.
Similarly, deducting your home office space only works if it’s your regular place of business: Your desk office must solely be used for work — “you can’t claim half of your spare bedroom because that’s where your desk is,” says Trisha Melikian, a Pennsylvania-based accountant. And “if your company allows you to work from home occasionally, that home office doesn’t count for this deduction,” she says.
3. …And Track Those Deductions All Year
Let apps do the work for you: Hurdlr is free and designed specifically for freelancers and contractors — it helps you manage your finances and track deductions. Travel a lot for work? Check out Concur, a free app that helps you plan business trips, track your travel costs, invoice clients, and approve and manage expense reports from your home base or smartphone. You can connect your travel apps, like Uber or HotelTonight, and even pull digital receipts from them into the app.
When it comes to driving for work, things get more complicated. “Vehicle use is very tricky,” Melikian says. “If a freelancer is going to claim expenses for use of their own car, we need to know date of purchase, amount, mileage, percentage use for the business, and the mileage considered for commuting.” Yeah, it’s a lot. So take advantage of apps like MileIQ and TripLog (both free) to keep track.
4. Rein In Your Receipts
Expense receipts can easily become the bane of your freelancing existence at tax time. Instead of dealing with the whole crumpled pile in April, carve out time during the year to organize your expenses.
Cut out the clutter with a portable scanner like NeatReceipts or a photo archiving app like Expensify. (Bonus: These tools count as business expenses.) NeatReceipts lets you assign a tax category to every receipt, and it’s integrated with accounting apps like QuickBooks Online. On days when you’re out and about, snap a picture of any work-related receipts to upload later.
5. Create an Invoice Command Center
There are lots of options when it comes to time tracking, invoicing, and collecting payments. Whatever you use, having a system will save you lots of stress year-round and help ensure you’ve received all of your checks and calculated your income correctly by tax time.
6. Set Aside Quarterly Payments
Sick of paying insane tax bills every April? Make sure you’re paying enough in estimated taxes every quarter. The free appQapital has a feature called the “Freelancer Rule” that lets you connect your checking account to an FDIC-insured Qapital account. Pick the income percentage you want to set aside for quarterlies (your accountant can give you estimates based on your anticipated income or previous years’ income).
From there, relax and leave it all to the app: It automatically transfers your chosen percentage from every deposit over $100 into your Qapital account. When you’re ready to pay your taxes, just transfer the money back into your checking account to pay the IRS.