The Self-Employed Rookie's Guide to Taxes
/In a “normal”, filing taxes as a freelancer may feel overwhelming. Now with the economic upheaval of Covid-19, this year’s tax filing may seem impossible. Especially if you have lost income and are scrambling trying to figure out how to cover your 2019 tax payment.
However, there is hopeful news! Many independent contractors and freelancers mistakenly understate their deductions and overpay on their taxes.
In 2019, cloud-based accounting software Xero found that 73% of freelancers deduct no expenses when filing their taxes. Why? Well, if you haven’t maintained organized books throughout the year it can be very daunting to go twelve-months worth of transactions. Using cloud accounting software like Freshbooks or Xero throughout the year will make your life easier by tracking your expenses, your income and keeping it all in one place for calculating your tax deductions.
Do your weekly money dates so that tax filing will be easy peasy and you can get back to sipping mimosas and doing what you love.
So what can you deduct, exactly?
For starters, and perhaps the most significant of deductions, office space. Other potential deductions include, but are not limited to, office supplies, computer hardware and software, and even things like health insurance. The more deductions you begin to discover, the more you'll realize that as a freelancer a lot of your daily life is tax-deductible.
However, studying up on these deductions--and where to put them on your tax form--takes a lot of time. For those who would rather avoid these kinds of headaches altogether, consider hiring a tax professional who specializes in taxes for the self-employed. Even the most diligent of freelancers will find that their simple lack of knowledge about tax law and regulations could cost them thousands of dollars a year. But keep in mind that you ought not to offload all your work on the tax pro; it's up to you to keep as thorough of records as possible to make their life easier.
Keeping track of all your numbers is just the tip of the iceberg when it comes to streamlining your business, though. Accounting pros recommend keeping your personal funds and business funds separate in addition to getting receipts for everything you purchase for your business. Paying with cash? No problem! Grab the receipt, take a photo and upload it to your cloud accounting software. During your weekly money date, remember to add a note to the transaction and reconcile it to the correct category.
In addition to a financial professional, also consider having an attorney on your team.. Cohen Schneider Law is a New York City-based law firm that helps self-employed individuals with obtaining tax exemptions. Visit their website today to learn more about them and see if they are a good fit for you.
When hiring a tax or legal professional, be sure to do your own due diligence. Money & Mimosas is not affiliated with the aforementioned accounting firms or attorney offices and their mention does not equal an endorsement.
About Money & Mimosas: Money & Mimosas was started as a passion project by Danetha. A former NFL cheerleader turned entrepreneur, she started blogging as a way to combine all of her passions into a career. Money & Mimosas is now enjoyed by readers in over fifty countries with the same dream of achieving financial freedom without living frugally.
