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9 Tips Accountants Give Freelancers and Creatives to Make Tax Season Easier

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16th Feb 2023

Managing finances and taxes requires a learning curve for almost everyone, and freelancing appears to have its own set of rules. When you start working for yourself, there's a lot to think about, from navigating quarterly tax estimates to forming an LLC.

If you're new to the freelance world or simply want some expert advice on how to improve your financial well-being come tax season, we asked accountants for the best tax advice they can give freelancers to make life a little easier.

1. Use a simple spreadsheet for bookkeeping

If you find bookkeeping so time-consuming that you put it off until the end of the year, try a simple spreadsheet system instead. For freelancers, a simple spreadsheet detailing their monthly income and expenses is ideal. This provides you with all of the information you need as a business owner to understand the health of your company, simplifies tax filing, and is simple to maintain.

2. Create standard operating procedures for bookkeeping

You may have to pay more taxes if you don't have specific procedures in place to update your bookkeeping every month. Maintain consistency with your accounting procedures as you would with your sales or marketing procedures. Write down your processes and schedule a day each month to complete the tasks.

3. Create a system for managing receipts

Because many purchases are tax-deductible, keeping track of your receipts is essential. However, managing all of your expenses while running a business isn't always easy. Choose an expense or accounting tool that includes a smartphone app for quickly snapping photos of receipts as you receive them. You can also keep electronic receipts in a separate folder in your email inbox. After that, forward these emails to your accounting software once a month.

Creating these small systems can save you hours in the long run and make it much easier to hand over your finances to your CPA.

4. Plan for your retirement

Just because you work for yourself doesn't mean you shouldn't invest in your future.

The individual retirement account is one option available to anyone with earned income. A person can contribute up to $6,000 of their earned income in 2019. This account can be either a traditional IRA, in which tax-deferred income is placed into the account and capital gains are taxed when sold in retirement or a Roth IRA, in which taxes are paid upfront and contributions grow tax-free.

5. Set aside self-employment taxes in a separate account

To cover Social Security and Medicare taxes, freelancers pay 15.3% on the first $132,900. You can set aside 10% of their net income in a separate account to ensure they always have enough money in the reserve to pay their self-employment taxes on a quarterly basis.

A high-yield savings account, which is just as liquid as a regular savings account but earns up to 2% interest on your savings, could be a good place to keep the money you set aside for self-employment taxes.

6. Budget for federal, state, and local income taxes

Because your taxes will not be deducted automatically from your paychecks, make it a priority to budget for what you will owe. Calculate the percentage of all taxes owed by multiplying the total percentage by your expected net income and putting that amount, along with your self-employment taxes, aside in a separate account.

7. Pay yourself periodically from a separate business account

Once you've saved enough for taxes, transfer funds from your business checking account to your personal account on a regular basis. Freelancers frequently struggle with adjusting to fluctuating income, but if distributions to your personal checking account are a fixed amount and made at regular intervals, your personal finances may remain relatively unaffected.

8. Get a business credit card

As a freelancer, you want to maximize your earnings by devoting as many hours as possible to billable activities and as little time as possible to nonbillable administrative tasks. Having a separate credit card for all of your business expenses will make it much easier to isolate and identify all of your business expenses, not only for your own profitability analysis but also for tax deductions.

9. Use time-tracking software

Use seamless time-tracking software even if you mostly work on fixed-price projects. It will also enable you to separate the time spent on administrative tasks, client communication, and business development.

The more precise this data, the better, because you may believe that a particular type of project is more profitable until you realize how much additional client communication it necessitates, or how much more time it takes to acquire that business.