Running your own business as a freelancer can offer the opportunity to create your own work schedule and choose your own clients. But some aspects of freelancing are more complicated — like paying taxes.
If you're a full-time freelancer, bring in extra money from a side hustle, or even did a one-off project this year for a single client, odds are good that you have extra tax obligations as a self-employed individual.
The reason: Typically, self-employed workers like freelancers and independent contractors do not have taxes taken out of their pay. You're responsible for paying taxes on that income.
Because taxes as a self-employed worker can take time to navigate, don't procrastinate on planning until tax season. Here are four tax moves freelancers should make before the end of the year.
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"It is crucial for the nonemployee to keep great records of their income and expenses," says Joseph D. Clemens, a certified financial planner and founder of Wisdom Wealth Strategies in Denver, Colorado. "You should keep track or enter your revenue from different contractors on an Excel sheet."
With that in mind, the end of the year is a good time to review your annual income to make sure your records are up-to-date as far as income you've received, expenses incurred, any invoices still outstanding.
As you go over all the companies you've worked for this year, make a list of all the income-related tax forms, like W-2s and 1099s, you expect to receive next year. That way, you'll know how many forms you're expecting and from whom, and what the right figures should be for each.
At tax time, those records will help ensure sure you have all the right documents in hand before you file — and that you don't forget to report any income.
Freelancers can typically deduct business-related expenses from their taxable income, says Steven Zelin, a certified public accountant and founder of Zelin & Associates CPA LLC based in New York City. The end of the year is a good time to compile receipts of business expenses you've incurred.
What's deductible will depend on your business. But Zelin says broadly, purchases and expenses that are "ordinary and necessary" for your freelance work can be deducted. For example, if you're a photographer, a camera you use for work would likely qualify.
It's important for freelancers to keep track of expenses throughout the year to make sure they're not missing any tax benefits. If you haven't been keeping up, now is the time to get organized. You can use accounting tools like Wave or QuickBooks to digitize your paper receipts and keep track of assets and expenses.
Given that potential for a tax break, now is a good time to think about any big purchases you want to make before the end of the year that you could write off. Planning ahead gives you time to set aside cash and make the most of year-end sales so that you can score a price break as well as a tax break.
Some effort before the end of the year will help set you up for tax and freelance success in 2020.
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