The Blog

03/21/17

How to Make Your Tax Day Easy As a Freelancer

My absolute least favorite part about being a freelancer is dealing with taxes. Most people never even see the money that employers set aside for their employees taxes – but freelancers not only pay a higher rate (income tax as well as the self-employment tax) but have to pay 100% of their own taxes. This can be so overwhelming and stressful even just to think about, much less actually deal with. (Being a libertarian I take issue with the system, but that’s another subject!)

Despite these difficulties, there IS a way that freelancers can make tax day not only less stressful, but easy to handle. Here are five key ways to make tax day easy for you!

How to Make Your Tax Day Easy As a Freelancer

01 Make taxes easy by using TurboTax

You can absolutely just print off forms from the IRS (1040-SE, 1099-MISC, etc.), but this means deciphering each part of the form. Your also need to make sure you understand each section so that you aren’t paying too much or too little. Because I know this method would be hard on me, I use TurboTax and I love it. What TurboTax does is walk you through the entire process of filling out any and all forms you’ll need, based on your employment status. The whole thing is a question-and-answer system, so you don’t have to worry about even looking at any forms (unless you want to! TurboTax allows you to check your finished forms before sending in your return)

The self-employment version costs around $115, but I would say it’s absolutely worth the cost to have an easy to use system. On top of that, if you’re due to get any money back they can take the payment from your refund, which makes it easy on your part.

02 Make taxes easy by keeping track of expenses

It’s important to keep track of money that you invest in your business, as well as money that you’re receiving from clients. There are multiple ways to keep track of money flow – you could write everything down by hand, use QuickBooks Self Employed (which does an awesome job of keeping track of money flow and allows you categorize each transaction. You can also send invoices to clients through it and track your miles.) Check out their business expense page for more information on all the functionality that they provide for expense tracking and more!

What I do currently is to manually add up all my expenses by keeping receipts and adding it all up at the end of the year. I don’t make enough business purchases to need a more complex system, so keeping it simple works for me. One way or the other, keeping track of the money you invest in your business is so important, as each qualifying purchase is tax deductible and can give you huge tax breaks.

03 Make taxes easy by using an invoicing system

It’s taken me a long time to find a client invoicing system that works for me and keeps track of everything – and I’ve finally found the perfect program. It’s called Bonsai and it’s pretty incredible! It was made by freelancers for freelancers, and what is so great about it is that it combines contracts with automatically invoices, and shows everything by client project. I have all my current clients listed together and I can see when invoices are set to go out, who still needs to pay, and more. The best part is that clients can pay by PayPal or credit card, and I automatically have a record of all payments received. This makes it so easy at tax time to add up everything and see how much I made!

Bonsai is not only perfect for freelancers, but it’s free! I’ll probably end up writing a post just on Bonsai and how I use it – it’s really transformed my whole process.

04 Make taxes easy by setting up estimated payments

Probably the most essential tip I could give any freelancer is to set up estimated payments. When you’re self-employed, it’s up to you to figure out how much money you’ll need to pay the government. The IRS prefers you to pay your taxes quarterly, instead of paying everything at the end of the year. What I do is figure out how much I think I’ll owe based on past income, and I split that into four quarterly payments. I use payusatax.com to send in my federal payments, and the NC state website to send in my state payments.

While it’s incredibly painful to send in those big payments each quarter, it makes it easier on me to know how much I’m sending in for the year and take care of it little by little throughout the year. If I waited until the end of the year to figure out how much I owe and then pay it all at once it would be way too overwhelming! So even though I don’t like having to voluntarily send in regular payments to the government, it’s the best way to handle the whole situation and make it easier on me in the long run.

05 Make taxes easy by staying calm

Most importantly, don’t let the thought of dealing with taxes stress you out! At the end of the day it’s just something else everyone has to deal with, and you’ll be able to handle it one way or the other. Yes, it helps to have a plan and carry it out, but ultimately you’ll get through tax season! Make yourself some coffee, turn on some music, sit down and work out a plan and you’ll find that tax season isn’t nearly as stressful as it used to be.