Roughly six weeks remain until April 17, the deadline for individuals to file their 2017 taxes. For freelancers, though, April 17th is the date to file the first of their quarterly estimated 2018 taxes. (The other three quarterly payments are due on June 15, September 17, and October 15.)
If you're a self-employed worker who has yet to file taxes, there's still time to get everything in order! Ahead are tips for freelancing newbies to well-seasoned self-employed workers on how to get the most bang for their bucks — or at least get by without raising any red flags.
Ariel Anderson Fortunato, a certified financial planner with Society of Grownups, advises that freelancers keep their business and personal expenses separate throughout the year to help maintain a clearer record of business-related expenses.
"An easy way to do this is to have a separate bank account and credit card devoted solely to your business," she says.
If you found yourself picking through old papers and receipts this year in order to determine what was what, look into opening separate accounts for next tax season.
Aside from clearly delineating business and personal expenses, you want to make sure that you maintain a paper trail for at least a few years to come.
"Maintain an organized record of all of your business-related expenses, and keep any receipts or invoices for up to three years," Fortunato says. "In addition to these expenses, become familiar with the rules around other common deductions; you may be able to deduct qualified home office expenses, equipment costs, licensing or certification dues, and even food or lodging."
That can equal massive savings in some cases. Lisa Greene-Lewis, a CPA and tax expert with Turbo Tax, notes that business owners can expense up to $510,000 for business equipment like computers, printers, and office furniture.
When you are an employee, your employer withholds taxes from your paycheck and also pays half of your Social Security and Medicare taxes. But when you're a freelancer, you must pay all of these taxes yourself.
"This is called the self-employment tax, which is 15.3% of your net business income," explains Greene-Lewis. "The IRS gives a little back, however, and you can deduct half of your self-employment tax, reducing your overall taxable income."
Fortunato adds that how you structure your business will have a direct impact on what forms you need to include with your tax return, so you need to make sure that you are filing correctly. If you are new to freelancing, consider hiring a professional accountant when you file your taxes the first few times around instead of doing it yourself.
You probably pay for your own health insurance if you're self employed (unless you are under age 26 and covered by a parent's plan). If you're not covered by an employer-sponsored policy, Greene-Lewis says, you can likely claim a deduction for the full cost of your premiums — even if your policy also covers a spouse and dependents.
"The policy needs to be in your name or in the name of your business," she explains, highlighting that this deduction won't be entered on a Schedule C (the profit and loss form used for sole proprietorships). Rather, it will be included as an adjustment to your income on the first page of your 1040 form.
"If you take classes to get certifications in your field or to enhance your business knowledge, you can typically write off those costs. The same is true for any licensing, registration or certification costs you bear," Greene-Lewis adds.
As with all freelance expenses, these deductions must directly relate to your business. For example, you can't write off a class on gardening if you're a computer programmer— so make sure you're being consistent.
Many self-employed workers post up at a desk at home (or on the couch...) each day. If you regularly — and exclusively — use a home office for the purpose of your business, says Greene-Lewis, you can claim tax deductions related to the space used.
"Expenses that may be deducted include a portion of real estate taxes, mortgage interest, rent, utilities, insurance, painting, and repairs based on the square footage of your home used for your business," she explains. "For example, if your dedicated work space takes up 15% of the total square footage of your home, you can deduct 15% of your mortgage interest or rent payment, utilities, and insurance."
Additionally, you can deduct the mileage for business-related travel. "If you drive to meet clients, drive to seminars, and special events related to your business, you can deduct your mileage at 53.5 cents per mile for 2017."
"If you are a talented and lucky enough to be full-time author and all your income comes from writing books, you won't have numerous 1099-MISC forms to keep track of like most freelance writers, but you should still receive one from your publisher and need to claim that money as self-employment income," Greene-Lewis says.
For additional jobs — anything from waiting tables to working in retail to an office job, she explains — you'll only have to pay self-employment tax on the portion of the income related to self-employment.
"If you had more expenses than income from the publication of your book, this is a business loss. It can reduce the amount of income you have to pay taxes on, even if you earned additional income from an employer."
Contribute to a self-employed retirement account for tax-advantaged savings, Fortunato says.
"Whether it be a Traditional IRA, a SEP IRA, or a solo 401(k), there are a number of plans available for the self-employed to consider. If you don’t have access to an employer-sponsored retirement plan, then you can fully deduct these contributions up to the applicable IRS limits."