Simple, Year-long Organization is the Key to Stress-free Tax Filing for Freelancers – by Mike Michelsen

Simple, Year-long Organization is the Key to Stress-free Tax Filing for Freelancers – by Mike Michelsen

Everyone has heard the old saying that there are only two certainties in life: death and taxes. Unfortunately, nobody has figured out a way to evade the former but, when it comes to the latter, taxpayers have a lot of options they can take advantage of. It’s important to note that the tax code changes constantly but, with a few general ideas kept in mind, small business owners, including writers, can not only be better prepared for tax season, but can usually emerge from April 15 with more of their hard-earned money in their pockets. Keep these tips in mind, and make tax season much less stressful.

Keep Good Records. Whether a business is small or large, a writer can incur many expenses in the operation of their business. This includes meals, travel, home office, health insurance expenses, and start-up costs. Unfortunately, nearly everyone starts out with the greatest of intents in keeping records, but some soon fall victim to forgetting receipts and other documents. The best way to solve this problem is to keep a datebook where all receipts are kept. Otherwise, using separate envelopes for different types of expenses is also good.

When it comes to keeping good records, there is another important factor to remember. Make sure you keep personal and business expenses separate. This can be done easily by keeping a good set of books (electronic or otherwise), with clearly classified accounts for all business expenses.

Keep Tabs on Your Clients’ Account Balances. It’s not necessary to always keep a running figure of what you are owed in your mind. But, it is a good idea to always have a general idea of what you are owed, and by whom.

Tip: I learned an excellent trick many years ago that has proven immensely helpful with my cash flow. Always stay aware of how much you are owed, and when payment can be expected. For example, I try to keep at least $5,000 in accounts receivable at all times. When that figure falls below that amount, I know it’s time to work a little harder.

Be Aware of Business Investments. Just as is the case with many types of expenses, equipment purchases can slip by easily. Equipment is a major deductible when it comes to taxes so it’s important to keep records of any purchase so you get the deductions you are entitled to. The IRS changes these types of deductions often so it’s important to stay aware of everything you might qualify for. When in doubt, speak with a qualified tax professional.

Get Prepared Now. It’s easy to get behind when it’s time to prepare for tax season. After all, nearly everyone has something that might be considered more important than preparing taxes. Unfortunately, this often leads to being ill-prepared when it comes time for the filing deadline. The key to avoiding this dilemma is to always be aware of what you are spending, and to keep track of all deductions you might be entitled to. This way, tax season can be a breeze. Waiting until the last minute can be extremely stressful.

One good point is in order. I have always been good about keeping receipts and staying aware of all the deductions I am entitled to. I always approach tax time with the attitude that the federal government will not be getting anything it isn’t entitled to. With this in mind, I keep all tax related receipts and other documents in a large banker’s box besides my desk. Further, all my expenses and receipts are recorded in an annual “Weekly Bookkeeping” book that I buy every January.

Taxes should not be the ominous chore most people consider it to be. All it takes is a little awareness of what a writer is entitled to in terms of deductions, and the records to prove it. Any writer who abides by this rule is less stressed when it comes tax time…AND may receive a larger refund.

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Mike Michelson has been a writer for more than 40 years, and have published in numerous publications, including small local newspapers as well as national magazines such as Business Week, US News and World Report, and many more.

 

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