Essential Tax Tips Every Freelancer, Developer, and Startup Should Know
Becoming a freelancer after spending some time working for other companies and bosses is a huge change. For many freelancers, this switch in employment terms offers extremely rewarding experiences, and people do it for many reasons. You’ve probably done a lot of research and reading to prepare yourself to become a freelance developer or starting your own startup.
As with everything in business, the issue about filing taxes is a rite-of-passage every year, and it may seem daunting at first, but in truth, it’s quite simple. The main thing is to start, and if you don’t know much about taxes, than it is also good to get some help. That said, here are essential tax tips to help you maneuver and navigate through this complicated task of filing your taxes.
Understand your taxes
Understanding your rights, your tax laws, and what taxes you need to pay as well as what you are exempted from will lead to less confusion, wasting less time, and preventing a stressful sales tax calculator filing period for you. The IRS is always changing rules and regulations for taxes, and it often happens up to the time taxes are due. Before you file any of your taxes, make sure to check for any changes that may affect your income or tax deductions.
Understanding your tax credits and other write-offs
Part of the building blocks to becoming a successful startup or freelance developer is knowing what write-offs and deductions are available for you. You’d be surprised how many people do not know this, and it affects the bottom line of a company or business that is only just beginning to grow. For startups, there is an R&D Tax credit that allows startups to get a deduction on any expenses used for research and development purposes. Speaking to a tax consultant can help you determine what write-offs you are eligible for as a freelancer and startup.
Document all expenses and income
This is must be part of your essential things-to-do when starting it out on your own. Even if you don’t have a firm idea of how to document this information, the brilliant thing you can do for yourself is to retain all documents pertaining to income and expenditure. You can use accounting software to help you easily and accurately document this information, or you can also get a part-time accountant to help you manage this. On another note, you also need to be aware of things on your own and not simply hand it over to your accountant to deal with it. Regularly checking the IRS website for the list of documents and transactions to keep track of will benefit you and your business as well as make the account’s life easier so they don’t rack up billable hours in helping you sort out your finances.
Keep track of your business expenses
It’s true- becoming a freelancer or a startup also means doing plenty of housekeeping on your own, and one of the best and easiest ways to streamline this is to ensure that you track and manage all business-related expenses. Did you know that you can deduct your mileage if it’s used for business-related travel? Keeping an organized and accurate system of records for your business receipts and expenses will help you claim and show proof of how you traveled for work in the year. Usually, the IRS has determined a fixed amount for mileage, so this is something you need to check before filing our taxes.
Get to know your tax forms
Depending on how you get paid, there will be different taxes that you need to file for. Usually, a W-2 is taxed differently than a 1099 form. Again, keeping an organized and accurate system of records will ensure the way you get paid. When it comes to tax filing season, you will need to show proof of your income.
Keeping the IRS in the loop
The IRS is more than willing to help set up a payment plan for you, especially if you are having trouble paying your taxes. Contact them to clarify your situation and to inform them that you cannot make the payments. If you don’t, you will end up paying severe penalties.
Get help on your taxes
No one can do it alone, and taxes may not be something you are good at. Hiring a freelance accountant or a part-timer to help you during tax season is the way to go. A person with an accounting background and experience will be more than qualified to help you understand your tax laws.
Did you also know that the fees you pay your freelance accountant are deductible? As long as you keep your receipts in good order, make sure that your hired accountant deducts their tax preparation fees.
Home office deduction
Most freelancers and startups begin work at a space in their home. If you use your home as an office, get the measuring tape out and measure the square feet of your space to determine the percentage of living space that is used as an office. This can be used as a deduction.
Utilities and office supplies
The cost of your computer, website launch, together with office supplies from pens, papers, staplers, and other office stationery, can be deducted. Even phone bills, internet, and utilities can be deducted too. Just make sure that you keep the receipts or invoices, bills, and other documentation to be able to prove the deductions of your year-end taxes. You should also get for any liability insurance or medical insurance taken for your job. This can also be tax-deductible.
Planning ahead and keeping track of your yearly expenses is always the best practice for both freelancers and startups, as it avoids any unnecessary headaches. A simple system of filing receipts and bills and an excel sheet to keep track of expenses is all you need to form the basics of good bookkeeping. As long as you have your paperwork in order, get a part-time account to help you out with this. It’ll save you loads of time and ensure that your tax preparation journey is smooth.