Artisan Creative is celebrating 20+ years in staffing and recruitment of creative professionals. Over the years we have learned a thing or two that we’d like to share with you. We hope you enjoy the 418th issue of our weekly a.blog.
According to 2016 statistics, freelancers makeup 35% of the American workforce, contributing around $1 trillion to the economy. If you belong to this freelancer economy, you freelance because you wantto, not for a lack of other options. This doesn’t mean you can’t use a little help with your taxes.
If you have not started working on your 2016 taxes, or you are running behind, now is the best time to get started. Check off these steps and you’ll be squared up with Uncle Sam in no time.
Determine what kind of return you need to file. Are you a freelance business as an LLC, or are you an independent contractor? Or did you work as a W2 with staffing agencies like Artisan Creative? Make sure you find the correct forms to file based on your business, as well as corresponding state and local forms.
Know the tax rules that apply to freelancers. First of all, and somewhat confusingly, you need to pay both income tax and self-employment tax. If you are new to freelancing, you may be surprised to find that you are essentially taxed twice, once as yourself, and once as a 1099 contractor. However, half of your self-employment tax is deductible as a business expense. If you haven’t set aside enough money to cover the cost of your taxes, start saving immediately so you can pay off at least some of your bill.
If you made more than $600 from any client, make sure you get a 1099. If you earn $600 or more from any one client, you need to report that income on your tax return. You should receive a 1099-MISC Form from each client by February 2. If not received, you may contact them and request one.
Research tax breaks. The IRS offers a substantial number of tax breaks which give freelancers a wonderful chance to get some additional deductions they’ve spent on their business. Deductions change from year to year, so research your deductible expenses. For example, if you work from home, you can deduct the cost of your internet bill, as it’s used to generate income. The IRS and Lifehacker have good information to review.
Organize receipts and expenses. To help maximize tax deductions and keep the IRS happy, it’s best to stay organized and keep updated records of receipts, expenses, and payments. Have all these things stored and easily accessible to reduce the stress of filing. For instance, if you’re creating a digital archive, Shoeboxed is a great app for storing, processing, and organizing pictures of receipts on your phone.
Stay on schedule. Do not wait until the week before April 15 to file your taxes – if you haven’t filed as a freelancer before, you may not expect it to be so intense! Use calendars – from Google to iCal there are plenty of choose from. Set aside enough time to complete a set of tasks, such as determining deductions or adding up your total income or expenses from 2016. Filing taxes is never exactly fun, but it’s less stressful if you’re prepared.
If you need more time, you can apply for an extension of time to file using Form 4868
Get help from a seasoned tax professional. Since tax deductions change so often, it may be best to hire a CPA to help so you can take advantage and save money. NerdWallet is an excellent educational blog to help you make smarter financial decisions and can tell you which tax breaks you’re qualified for.
Set yourself up for next year’s success. After you’ve filed, be sure to rest, hydrate, and celebrate capping off a year of hard work and accomplishment. If you find that this year’s filing has been stressful, be better prepared for next year! You may want to create a separate bank account for your business and pay any business expenses such as insurance and tech maintenance through that account. Then use your organization system to keep track of receipts, as well as how much you think you’ll need to set aside to pay next year’s taxes.
If you’re struggling with the stress of running your own shop, other members of your local freelance community may be able to help, or at least commiserate. You can find professional guidance and peer support through freelancer meetups in your area, or by talking to a representative at Artisan Creative. If you work for yourself, don’t do it alone!