It's that time of year again! Taxes -- that dreaded T word that's due on April 15 - 13 days and counting! As a self-employed contractor or freelancer, this is the time of year when we hunt for receipts and pray to the IRS gods that we have all our ducks in a row (or maybe that's just me!)
I'm not a tax expert by any means. However, as a freelance copywriter and consultant, I've learned a few tricks over the years when filing my taxes. Some freelancers (especially writers) think that because they don't make a lot of money, they don't have to pay taxes. Even if you freelance on the side and have a 9-5 day job, you still have to claim income earned. Here are a few step-by-step tips for newbies.
#1 Fill out the Schedule C - Form 1040, Profit or Loss from Business (Sole Proprietorship). If you contracted with a company this year and they paid you $600/yearly, the company (by law) has to send you a 1099-MISC form. If you did not receive a 1099, remember to claim all income earned on your Schedule C. You can also use the Schedule C-EZ form but specific criteria applies (i.e. if you don't have employees, expenses are under $5000, no home office deduction, etc.) You can find out everything you need to know about business taxes on the IRS website.
#2 If you can help it, don't fill out forms by hand. It really, really helps (and saves you a LOT of time) to use an online tax preparation program or a tax software program such as Turbo Tax. My taxes are fairly straightforward so I use an easy online prep program called Free Tax USA. There is a small fee to electronically file state taxes but electronic federal filing is free. You can also set up auto deposit. This makes it really easy to get your tax return deposited into your bank account and/or if you have to pay taxes.
#3 Don't forgot to claim ALL expenses. Business expenses include: travel mileage, food/business lunches, coffee meetings, business trainings and seminars (both offline and online), equipment (i.e. that new iPhone you bought this year for business), etc. Claim as many expenses and deductions as you can. If you aren't sure what you can or cannot claim, ask a CPA. Hopefully, you saved all receipts. Keep your receipts organized, especially if you have to work with a CPA. You will need to save your receipts as proof of your business expenses.
#4 Carefully review your taxes before you submit them. The IRS will kick back your forms if there is an error which delays the filing process. Even if you file for an extension, you still need to pay your estimated taxes by the April 15 deadline. If you don't file by that date, you will be penalized. The great thing about online tax prep programs is that they catch the errors for you so you can go back and correct them before filing. After you file, make sure to keep hard copies (or PDFs on your computer) of your returns. You must keep these copies for your records. According to the IRS: Keep records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later.You file a claim for a loss from worthless securities or bad debt deduction; keep records for 7 years.
#5 Hire a licensed CPA to assist you - especially if you don't have time or your taxes are complicated. Also, the IRS has a lot of helpful tips and information on their site for contractors and self-employed business owners.
If you file electronically, make sure to sign your state tax form and keep ALL hard copies in a file folder/cabinet in a safe location. Some business professionals put their tax information in a fire-proof safe which is a smart idea.
May the force be with you and many happy Tax Returns! :)
For California residents, check out:
https://www.ftb.ca.gov/index.shtml?disabled=true
More helpful tax prep links:
http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed
http://taxes.about.com/od/taxsoftware/tp/taxsoftware.htm
http://www.sba.gov/category/navigation-structure/starting-managing-business/starting-business/establishing-business/taxes
http://www.huffingtonpost.com/jamie-sutherland/last-minute-tax-tips-for-_1_b_5072966.html
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