Taxes for Freelancers - Part III

Welcome back to the third post in my "Taxes for Freelancers" mini series (be sure to read Part I and Part II, if you missed them!).

Today, I want to share a bit about my process for staying organized and keeping good records throughout the year. This is essential for making sure tax season goes smoothly!

One thing that helps me stay organized is setting aside a few hours each month to work through a list of business to-dos (inspired by this post).

On the first Friday of each month, I spend a few hours organizing my records from the previous month, checking in on my financial goals, and preparing for the month ahead (make invoices, schedule blog posts, etc.).

Here is my monthly checklist:

FINANCIAL

Schedule credit card payment(s)
Buy Roth IRA mutual funds (set monthly amount)
Make loan payment (set monthly amount)
Review bank statements from this month*

*Other monthly investments and savings are automatic

SD and I set financial goals at the beginning of the year with monthly investment amounts. It's rewarding to see our progress month by month! In addition, I feel more productive and organized when I do all of these more administrative tasks at one time (instead of remembering to pay bills at different times each month).

BUSINESS

Create studio invoices for next month
Write and schedule invoice emails (thank you, Boomerang!)
Record income and mileage for this month in studio budget
Deposit checks
File receipts (I sort mine into categories: Business Travel, Meals, Professional Development, and Business Expenses)
Print assignment sheets for lessons next month
Pay estimated taxes (federal, state) [quarterly]

As a teacher, music director, and full-time student, it helps me to step back every few weeks and evaluate my business as a whole, reflect on my teaching, and plan ahead. Setting aside part of a day each month keeps me accountable in those tasks that can easily be overlooked (e.g. filing receipts, tracking mileage, and setting aside estimated tax).

PERSONAL

Plan blog calendar for next month (I love this one from Em for Marvelous!)
Run computer backup
Back up iPhone photos [quarterly]

Some of the things on this list help me stay on track with my monthly goals, as well (bonus!).

The real secret? Organize and keep records as you go.

1. Report your income and expenses in a spreadsheet each month.
2. File your receipts every few weeks.
3. Tally your business travel receipts when you get home from your trip.
4. Keep a separate bank account for estimated tax money.
5. Keep a little notebook in your glove compartment to document mileage.

Have other creative ideas for staying organized and keeping good records throughout the year? Leave a comment below - I'd love to hear!

Previously:
Taxes for Freelancers - Part I
Taxes for Freelancers - Part II

Taxes for Freelancers - Part II

Welcome back! 

As I mentioned in my last post, SD and I are by no means tax experts, but we've learned a thing or two about filing taxes as freelancers that I thought might be worth sharing. 

This series does not replace talking to a professional - if you're brand new to this, I highly recommend that as your first step! - but it's my hope that these resources and suggestions can serve as a broad introduction to doing your own taxes and keeping good records throughout the year.

Taxes are complicated and they can take up a lot of time, if you're doing things yourself. 

Want to know our secret for staying sane? We start the process in January. 

We work on some of the tasks below on our own and then sit down a few times over the course of February/March to go through the software together (by the way, we use H&R Block).

Here are a few things you can do to get a head start on your taxes:

1. Gather year-end statements and tax documents. 

Some of these come in the mail, others are all online.  Take a few minutes to save PDF versions to a folder on your computer and/or gather all hard copy statements into one place.  Here's a starting list:

• State tax refund(s) from last year

• W-2(s)

• 1099(s) (contracting work, interest, dividends/capital gains)

• 1098-t (if you're a student)

• Student loan statements (you can deduct any interest you paid last year)

• Your self-employment income from last year

• IRA/Roth IRA investment totals

• Health insurance premiums (deductible if you're self-employed)

2. Pull receipts and expense records and calculate totals. 

That professional conference you attended last summer?  Deductible.  That lunch you had with someone you mentor (professionally)?  Deductible.  I sort all of my business-related receipts in an accordion folder during the year; in January, I spend some time calculating totals.  Here are a few categories to help get you started:

• Business Travel (air travel, rental car, tolls, hotel, internet charges when traveling)

• Business Meals (usually, you can write off 50% of this total)

• Business-Related Purchases (books, music scores, equipment)

• Business Expenses (website hosting, office supplies, conference registration, dues)

3. Add up miles driven for business. 

Driving to and from a gig?  Keep track of your mileage!  Any time you drive to "work" (a place that doesn't send you a W-2), you can deduct that mileage using the federal mileage rate. 

It's best if you can keep something in your car that will prompt you to write down starting and ending mileage for each trip, but if that doesn't work for you, keep track of the dates and destinations and calculate the mileage later.  Also, figure out the total number of miles you drove last year (they'll ask for this number, too).

4. Make a list of any charitable donations. 

Whether you donate a bag of clothes to Salvation Army or make an annual donation to your Alma Mater, you can report all charitable giving on your taxes.

5. If you paid estimated tax last year, look up these payment amounts (federal and state). 

If you make more than a few hundred dollars a year in your freelance work, it's a good idea to make estimated tax payments (federal and state) each quarter (April 15, June 15, September 15, and January 15), since no one is withholding money from your paycheck.  You can do this online pretty easily. 

A good rule of thumb is to pay 5% of your quarterly earnings to your state and 20% to federal. 

When you file your taxes, they'll ask how much you paid each quarter, so have these amounts ready.  If you underpaid during the year, you have to pay a fine; if you overpaid during the year, you get a refund (yay!).

Hope this little glimpse into our process is helpful!  More ideas, strategies, and helpful hints coming soon in Part III!

Previously:
Taxes for Freelancers - Part I

Taxes for Freelancers - Part I

I'm excited to share this post with you today, the first in a mini series on taxes for freelancers.

I know, taxes are super fun and exciting, but as a freelancer, it's part of managing your own small business.

SD and I have been doing our own taxes for more than five years now, and, while we don't consider ourselves experts by any means, there are a few things we've learned along the way. I'll be sharing a little bit of our process in upcoming posts.

To get us started, I pulled together five helpful resources on where to begin and getting organized (always a good refresher, even if you've been doing your own taxes for a few years now!):

1. How to Do Your Taxes if You're a Freelancer
2. Tax Filing Tips for Freelancers and Bloggers
3. Tax Tips for Self-Employed Professionals, Freelancers and Contractors
4. Freelance Taxes #1: The Basics of Getting Started and Preparing Your Taxes
5. Tax Advice for Freelancers in 2014

Do you do your own taxes? What are some of the things you've learned as a freelancer?

March: Getting Organized

March is the month I get into major organization mode. 

It’s been a few months since I’ve done any major planning (I tend to do the bulk of this work for school and choirs in the summer and again in December/early January) and this midpoint in the semester seems to be a good time to reevaluate, catch-up, and refocus on the next few months (the final stretch!). 

This kind of work is not necessarily “fun” but it’s absolutely necessary and I have such a feeling of accomplishment when I can check these things off my list! 

This year, March is the month for taxes, grading, WCMW planning, and preparing for Easter.

Taxes

A necessary evil, I swore last year I would never do my own taxes again and, well, here I am.  After spending too many hours than I care to count this weekend crunching numbers with H&R Block At Home (and working through 3.5 federal returns – don’t ask), we are done with the Federal return.  Next weekend, we’ll tackle the state(s). 

A few tips for fellow freelancers who are brave enough to attempt this on their own:

• Keep track of your mileage (gigs, self-employment teaching, medical, professional development) and add it up in advance.

• Save receipts of things you can count off against your business (for me, that means sheet music, website costs, office supplies, and travel)

• Certain bills can be deducted if they apply to your business (i.e. percentages of phone and internet and a portion of rent/utilities for a home office)

• Keep track of equipment you purchase/use for your business (computer, phone, external hard drive, printer, etc.)

• Collect tax documents from employers, banks, investment companies, and lenders in advance (many post them online instead of mailing them log in and get the information you need before sitting down to complete your returns).

• If you make estimated tax payments throughout the year, make sure you have a list of the amounts and dates.

• Review your credit card statements in advance to be sure you didn’t miss any expenses that might be deductible.

Mid-Semester Grading

This week is Spring Break at the college.  Spring Break as a college student meant a combination of sleeping and vacationing.  Spring Break as a professor means grading 32 essays (5-pages each), 25 quizzes, 3 group projects, and 13 playing exams.  What was I thinking?!  Well, I was thinking that this would be the perfect week to lay low, dress in comfy clothes, curl up on the couch, and catch up on grading.  Hopefully, by the end of this week, I’ll have all mid-semester projects graded and ready to give back (meaning I will finally have a coffee table again!)

WCMW Planning

The Westminster Chamber Music Workshop is a series of free chamber music events in Westminster, MA.  Each event is designed to be educational and entertaining for community members of all ages! 

This year, Steve and I are planning four music events, one for every Saturday night in May.  Running a small organization of any kind is a lot of work but lucky for us, we love it! 

We have two small grants from local cultural councils to help us provide these concerts at no charge to the community and we recently announced our exciting line-up of guest artists.  March is our month to get the word out, send guest artist contracts, garner sponsorships, and begin designing our print materials.

Easter Preparation

Any church musician knows that Christmas Eve and Easter are the biggest services of the year. 

This year, Easter falls on Sunday, April 8 which means we are in full prep-mode this month!  We have special music planned for Palm Sunday, Maundy Thursday, and two services on Easter Sunday (that’s four services in 8 days!)  Of course, we have more to practice than just introits and anthems; special services often mean special choreography and yes, we practice these things in rehearsal! :-)

Here’s to March – a month of getting organized, making decisions, and making excellent things happen!

Tax Season

After three years of doing my own taxes, you'd think I'd have this figured out by now.

My biggest problem seems to be staying organized during the year.

• save receipts

• keep pay stubs

• collect statements of various accounts

• record mileage

• keep track of self-employment income

It's bigger things — professional development, health receipts, donations, gig money, and business expenses (phone, internet, etc.). Having W-2s, 1099s, and self employment from two different states doesn't help.

After a full Saturday of sorting papers, crunching numbers, and cursing the software that kept "not responding" (without real curse words, of course), I completed my federal return and two state returns.

I wasn't quite ready to file them, however. I like to wait until Steve does his taxes so I can correct my mistakes. "Did you answer 'yes' to question #43?" He asked. "Yes," I answer, tentatively. "You shouldn't have." He says, then explaining the rationale. By the time I get back to my taxes a few days later, I have a list of things to correct. Sounds pretty foolproof, right?

I am happy to report that as of this weekend, I have filed my federal return and one state. I will mail in my MA return this week.

Maybe next year I will avoid this hassle and buy myself the luxury of a real accountant!