Slow Season Survival: Tax Prep for Creatives
It's January and that means we are all the majority of us are pouring through our inboxes for electronic shipping confirmations, fishing through our coat pockets for orphaned receipts, and, in general, playing detective to track down all of our business expenses we procrastinated logging throughout the year. Today, let's talk about better ways to prepare for and handle your freelance taxes.
By mid-January, I'm still pouting about having to do my tax prep and, simultaneously so irritated with myself for not doing better about cataloging my income and expenses throughout the year. I mean, how easy this could be if I'd only just scanned my receipts into an app or logged all of my payments in one place instead of five. Thanks, 2017 Crystal. Thanks a lot.
Now, I'm faced with HOURS of searching and struggling to remember if something was a business expense or personal expense. One year, I was logging all of my expenses into Microsoft Excel and after (I kid you not) 4.5 hours of The Procrastinator's Tax Prep Punishment, I realized that I had done something to skew the rows in Excel and none of my expense dollar amounts matched with the expense descriptions. Cut to me having an adult temper tantrum. I may or may not have cried.
So, let's talk about some ways to 1) handle tax prep (especially if you haven't ever done it as a freelancer) and 2) make tax prep easier.
|Do you want to create your own solution in Excel or Google Sheets or do you want a more complex solution in an app?|
Decide: DIY or App for Expense and Income Tracking
You have a decision: use a combination of apps to make your tax prep easier or create a DIY solution using Excel or Google Sheets.
There are so many apps on the market to help freelancers with tax prep. They range from super simple and inexpensive (like Zoho) to complete bookkeeping package (like Quickbooks). These apps make it easy for you to track expenses and income, mileage, and some will even help estimate your quarterly and annual tax. Some great bookkeeping apps for freelancers are:
- Quickbooks Online: Integrates with most CRM programs, well-known among accountants, intuitive, most features for the money, scaleable tiers of service, mileage tracking in mobile app
- Freshbooks: great mobile app -- best for service providers vs businesses with inventory, competitive pricing, cloud-based
- Godaddy Bookkeeping: inexpensive, integrates with PayPal, Amazon, Etsy, and Ebay, quarterly tax estimates, best for business who sell through the previously mentioned sites
- Xero: Great for Mac users, cloud-based, tiered levels of service, all plans include unlimited users, users can cancel at any time -- no contracts
- Zoho: great for artists and other home-based businesses, includes time tracking and upgrades to handle 1099 independent contractors
- Wave Accounting: super simple, basic bookkeeping software that is free. Free!
Recording all of the money you spent for your business throughout the year is where most people procrastinate and end up spending the most time in prepping their taxes. If you're buying a lot of product on the fly, this is even harder to track because you may have renegade Ulta or CosmoProf receipts in your car, coat pockets, under your bed, in the bin you designated for random receipts, in your kit, in your husband's coat pockets (true story), or any other place receipts can find themselves. Most of the programs listed above have receipt scanning functionality -- where you attach an image of the receipt to the expense you've logged. Not all of them have a mobile solution, though. It's much easier to remember to log your receipt as you're walking to your car vs once you get home. That's where apps like Shoeboxed and Expensify come in. These apps allow you to log your receipt info and images and they connect directly to Quickbooks. Imagine if you didn't have to gather up all of your expenses for the year -- they were just in a program ... waitin' for ya?!
Mileage is also something that is tedious and tricky to track at the end of the year. Apps like MileIQ and TripLog can help do this for you throughout the year. Quickbooks online has a mileage tracking feature, as well.
Any bookkeeping software that 1) handles electronic invoicing and accepts payments or 2) integrates with a CRM program that handles electronic invoicing and accepts payments will help you track your income.
For those who would rather create their own, super simple, solution, you could always put together a Google Sheet or Excel workbook with your mileage, income, and expenses. It's more work, takes more discipline, but is free.
|Make sure all of your tax deadlines are on your calendar with a reminder that gives you enough time to prepare.|
Put Deadlines On Your Calendar
In Michigan, if you're selling stuff (lipstick, skin care, hair extensions, etc.) you must collect and pay sales tax to the state. Make sure you have a license to collect sales tax and then put your assigned filing frequency (monthly, quarterly, or annually) on your calendar so you don't miss it. If you're reading this outside of Michigan, check with your local state regulations on the frequency for filing state sales taxes.
If you have a team or hire assistants or second artists from time to time, there is extra stuff you need to do to for them and forms you need to file with the IRS. You'll need to make sure you've collected W9 forms for all of your independent contractors and use that information to file 1099-MISC forms on any income they made over $600 with the IRS. You must have their forms to them by 1/31, just like a W-2, so they can file their taxes.
Put these extra deadlines on your calendar, giving yourself a week or two to prepare, so you don't miss them.
|I don't. That's why I hire a CPA to do my taxes.|
Hire a CPA
Freelancer taxes can get complicated and ugly really quickly. When you're itemizing your deductions, there is a lot of info to keep track of, forms to file, and hiring a professional can really help. A CPA can let you know if your home office qualifies as a deduction or if the manicures you've been getting every two weeks are deductible. They can advise you about the impact of the new tax laws and help you deal with the IRS if you take a loss too many years in a row. The investment is worth the peace of mind.
|This little boy is everything I want to be.|
So, let's get a plan together to create a system to work on our tax prep throughout the year so that next January, we'll be happier, less stressed, and able to focus on innovating thinking for our businesses vs being bogged down with playing catch-up!