Soundings for Freelancers! What you should know about taxes.

SOUNDINGS FOR FREELANCERS!

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Some of the most daunting challenges I have encountered while starting Soundings Connect have been choosing the best technology, resources, and people to support the growth of my business. As an employee, you have the luxury of focusing on the business function you were hired to do. As a business owner, you need to know about all areas of your business - or as I like to say “enough to be dangerous”.

Through it all, I’ve kept track of the small business resources I’ve found from tax professionals to marketers, email hosts to CRMs, and associations to networking groups. I have asked my favorite business experts to join me in sharing their best insights for freelancers through a series of thoughtful articles.

Hope this series is helpful on your journey to independence!

-Tracy


WHAT FREELANCERS SHOULD KNOW ABOUT TAXES

It’s everyone’s favorite time of the year again…tax season! Instead of looking back on the past year (I am sure you are spending enough time on that as you prepare to file) I asked my tax accountant Jessica Estrada, Tax Partner at PacWest Accounting, to share some advice on how to prepare for the future.

Here is the advice Jessica has to make this tax year a little less taxing:

Record Keeping

Keeping good records will ensure that you don’t miss any deductions and potential tax savings.  As you make donations throughout the year, record them at the time you donate to church or a school fundraiser, certain business expenses you incurred, summer camps for your kids.  If you create a tracking system early in the year you can simply plug in the details. 

Update your Payroll Withholdings

If you have yourself on payroll, the beginning of the year is a good time to review your current Federal Form W-4 and state equivalent form (California employees this would be your DE-9) on file to confirm that you are claiming the correct filing status and number of allowances – especially now with all of the tax law change.

Mileage

Keep track of business use and mileage for business purposes.  There are many phone apps these days that you can turn on while you drive that will track your mileage for you.

Home Office Deduction

Many self-employed individuals who work from home and don’t have an office outside of the house can take a deduction for home office expenses, which can include rent or mortgage interest, property taxes, renter’s insurance, utilities, phone/internet, repairs, cleaning, home office furniture just to name some of the main ones.

Retirement Planning

Setting money aside for your future could potentially save thousands of dollars on taxes.  Instead of giving your money to the government, look at potentially putting money away in your retirement accounts while saving yourself some taxes.  

Sole Proprietors

Is it time you set up a LLC or S-Corporation?  This is potentially a question you should be asking yourself and discussing with your accountant to analyze the potential tax savings to change the set-up of your business entity.  It could potentially help you benefit from a larger 20% passthrough deduction on your tax or reduce your self-employment FICA/Medicare taxes and additional benefits as well.

LLC or S-Corporations (for California businesses)

Have you paid your annual minimum tax payment of $800 to California by April 15?  Have you filed your statement of information with the California Secretary of State?  These forms are due every year or every other year with a $20 filing fee and can be paid online.  If not filed, you could potentially pay a $250 penalty along with being at risk for suspension of your business.

Quarterly tax payments

If you make estimated quarterly tax payments throughout the year, make sure you record the payments you make so you will have this information available for the following tax year. 

Financial Strategy & Communication

Are you planning to start a new business or buy a business?  Will you be investing in real estate?  Buying or selling a property   Are you a business owner thinking about buying or leasing a car?  Have you received a large inheritance or setting up for retirement planning?  I cannot stress enough how important it is to talk with your accountant before making any big financial decisions in your life.  Your accountant can advise you about any tax planning that can be done ahead of time to reduce your overall tax liability. 

Retirement Planning

Setting money aside for your future could potentially save thousands of dollars on taxes.  Instead of giving your money to the government, look at potentially putting money away in your retirement accounts while saving yourself some taxes.  

Teamwork

It is important to have a good team that works together for your financial future.  Make sure your financial advisor, estate and trust attorneys, accountants and any other member of your team are all working together and working toward the same goals for you. 

Do you have comments or questions for your fellow freelancers? Please post in comments below!