Five Tips for Freelancers Preparing for Tax Season
Tax season can be a stressful time of the year for all employers and employees—but especially for freelancers, who are mostly in charge of all their own expenses. Throughout the year you’ve had to keep track of every expense, big or small. And now it’s time to organize them and file. This does not have to be a challenge! Here are five tips that will help you prepare for tax time—and hopefully alleviate some of the worry that can come with it.
1. Know Your Earnings
The first thing you’ll need to have a solid handle on is your total earnings for the financial year. You need to be able to track every cent of what you earned so that your accountant can accurately assess your tax requirements. Keep a running record of your earnings by date so that by the time tax season comes along, you’re ready. Preparing for tax season is a year-long process, so get started on tracking your expenses for the coming tax year as soon as possible.
2. Track Your Expenses
As with your incoming earnings, you’ll also need to know your outgoing expenses. This can sometimes be more challenging for freelancers as there can be many hidden costs that you may not initially consider as business expenses. Depending on the nature of your work, things such as the internet, your phone and even electricity can be considered business expenses. Vehicle-based freelance work in particular has many costs associated with it. The cost of running vehicles, fuel and insurance premiums are examples of possible expenses here. Apps such as a mileage tracker can be useful for monitoring vehicle usage, which can make this endeavor slightly easier.
3. Understand Deductions
Deductions can be complex. While your accountant can certainly advise what you can and cannot list as a deduction, it’s a good idea to have your own understanding of the matter. This knowledge will be invaluable come tax time. It will help you ensure you’re not missing out on any potential tax deductions.
4. Organize Your Accounts
It’s essential that you organize your information to make it easier at tax time. Keeping detailed records is crucial for business, and implementing a solid organization system is key to making sure everything remains in place. There are plenty of programs that will help you organize your finances and keep them all in one place. Do a bit of research and you’ll be organized in no time.
5. Plan Ahead
If there’s one thing you can count on, it’s that tax season happens every year. Take advantage of this certainty and plan ahead. Ensure you have all of the above information handy prior to tax time in order to prevent needing to rush around and locate relevant paperwork at the last minute. Not only can this increase your stress levels, but you also run the risk of missing some important information.