As a beginner freelance contractor, I remember meeting with a tax professional to learn for the first time how my work situation was going to impact my tax season. Sitting across the table at a coffee shop, she told me about saving 1/3 of my take-home income, introduced me to mileage tracking and asked me questions about my at-home workspace. I was having a hard time putting it all together, but then it became clear: I was going to need to keep track of more than I was used to.
Being a freelancer was an awesome experience and it looks great on a resume, but it should be known that this career option comes with some special tax responsibilities. Because the IRS doesn’t take taxes out of your paycheck, it means that if you made more than $600 last year you will need to pay your dues come tax time. Here’s the good news: there are so many awesome ways to customize your tax situation so everyone can stay happy!
The greatest influence you can have over your taxes as a freelancer is through deductions.
Basically, deductions work like this:
Your net income – your deductions = amount of income the government taxes
Deduction tips:
- Keep your receipts. Seriously. Also, FYI, you might only get to deduct the amount the item is currently worth – not what you paid for it.
- Don’t fool yourself. Deducting an expense doesn’t mean you don’t have to pay for it. It just means the government will tax you on less income.
- Be honest but fair.
- Keep good records. In the event of an audit you'll want your records to be watertight.
Deductions You Might Qualify For:
- Mileage. Make sure to record your odometer reading at the beginning and end of the year, plus keep track of how many miles you traveled during EACH business trip.
- Your car. If you use your car more than 50% of the time for business purposes, then you may be entitled to additional deductions.
- Part of your mortgage or rent. If you work from home, then you might be able to deduct the portion of your housing cost based on the size of the room in which you work.
- Your cell phone. How much do you use it for work communications?
- Business expenses. Did you get a new computer for work? An iPad, software, or supplies?
- At home internet access.
- Work related food and coffee expenses. Do a lot of lunch meetings and coffee dates? Keep the receipts!
This list goes on and on. There are dozens of potential ways to customize your deductions. For more details, talk to a tax professional or go online and do some additional research.
Also, don’t forget about any of your regular tax opportunities, like tuition expenses and dependents!
Written by Briana Malrick
This blog post is from the Author's perspective and doesn't speak for brightpeak financial. Contact brightpeak if you want to know more about brightpeak products, and keep in mind that they are not available in all states and there are some limitations (some exclusions and restrictions may apply).
