Note from Jennifer: When you become a freelance writer, you also have to learn a lot about how to manage your finances, because it’s not the same as being a traditional employee. Understanding the basics of tax requirements and available deductions can help you keep up with your tax payments and even keep more of the money you worked so hard to earn. Vanessa Salvia shared some great tax tips in The Freelance Content Marketing Writer group on Facebook, so I asked her to write this guest post to explain more about what freelance writers need to know about taxes. After you read her advice, be sure to visit her website and learn more about her work.

By Vanessa Salvia

Taxes are never a piece of cake, no matter how well prepared for them you are. But after nearly 20 years of freelancing and two years of full-time freelance income, I have learned a few tricks that make it easier. 

My best recommendation, no matter what level you’re at with your freelance income, is to hire a tax professional. I didn’t hire a tax professional for the first decade of earning a freelance income (my husband used TurboTax) and I know I lost out on deductions I could have taken. Software is, for the most part, just not nuanced enough to handle all of the many deductions and expenses that it is possible for a freelancer to claim. (Who knew that business credit card interest is deductible?! I didn’t until last year.) So consider the investment in paying a professional to be well worth it. Plus, the amount you pay a tax preparer is a deductible business expense the following year.

New York-based freelance writer Rose de Fremery suggests working with someone who understands the tax landscape for self-employed people. “Find someone who is proactive about advising their clients on strategies that may reduce their tax burden,” she says. “I also think it’s best to work with someone who doesn’t approach tax preparation as an annual transaction but as an ongoing process in which you both become steadily better at understanding your unique tax situation and how you can best approach it.”

Even when you hire a professional, you still have to track your own expenses, save receipts, track your income, and somehow present this to your preparer in an organized way. My tax preparer provides a worksheet where you can total up numbers and add them to the worksheet — this is great, but it can still take me hours to add things up and get my documents organized enough to be ready to hand over.

The best way to save time when your taxes are due is to spend a little time staying organized in the months before. It’s not always fun, and sometimes I get behind and hate how long it takes me to get organized again (I traveled three times over three weeks for business one month, and had a stack of receipts to sort through at the end of the month because I didn’t deal with it as I went along). Here’s how I do my best to avoid that.

Saving Receipts

A lot of receipts are digital. I use QuickBooks Self-Employed, which allows you to attach a receipt to a transaction. If I have a receipt in my email, I take a screenshot and attach it. If it’s a paper receipt, it goes in a manila envelope labeled with the tax year. Someday I will digitize all of my paper receipts, but I’m not there yet. Some good options to make your business paperless are:

• Shoeboxed – This one has a monthly fee depending on your level of usage. You mail in your receipts and they scan them for you.
• Evernote’s Scannable App – Scan contracts, receipts, business cards, and any other paper. Evernote has usage fees depending on the level you want.

I’m also a big user of labels in Gmail — I use labels for everything. If I have digital receipts that I don’t have time to deal with, I send them to a folder called Receipts, so I don’t have to hunt for them when I am ready.

Tracking Expenses

This is the part that takes the most energy. Last year I created a spreadsheet that was simply a column for date, a column for amount, and a column for the reason for the expense. Whenever there was a new expense I added it to the list. But, and this is a big but, my tax preparer wants my expenses totaled by category, so I had to separate them. When it came time to add up my expenses at the end of the year I had to take them all out of this non-organized list and determine which category they went into. 

This year, I created a spreadsheet with the categories. So instead of just one non-organized list I have everything separated into categories such as Professional Memberships, Subscriptions (my QuickBooks fee), Payment Fees (PayPal, QuickBooks payment fees), Meals For The Purpose of Meetings vs. Meals For the Purpose of Research (I write about food), etc. Whenever I have a business expense it automatically goes into one of those categories on my spreadsheet, which will make it super easy to get a total at the end of the year. 

This is the hardest part for me. I set a goal that I’m going to organize my expenses daily, ideally, but if not, then weekly, as a rule. It makes me feel much less stressed when I know my financial life is in order and I don’t have a pile of receipts to go through or a long trail of bank transactions I have to figure out weeks after the fact.

Rose says she also uses the categories her tax preparer uses and notes expenses in her spreadsheet as they come in throughout the year. Since she’s not using accounting software yet, she saves receipts in folders on her computer that are arranged according to those same categories. Paper receipts are stored in an envelope, for now. She dashes off notes to herself to remind her about what she needs to do with her receipts.

She also notes that this expense tracking can also come in handy if you need to report your business income and expenses (often by category) when renewing your healthcare coverage under the Affordable Care Act. (Everyone’s location handles this differently.)

Educating yourself

One lesson I took a long time to learn along the way was the many things that are deductible as expenses. This handy list of small business tax deductions is a good thing to look over so you know you’re tracking and claiming every deduction available to you. I despise taxes. After I got married a few years ago, my husband didn’t want to pay a tax preparer so he used Turbo Tax. I stayed out of it for the most part because I despised tax time so much. Once I got divorced though, I realized I needed to take ownership of it. I interviewed a couple of tax preparers and found a local person I liked and trusted, and asked a lot of questions to get my bearings. 

Some eye-opening expenses that I missed out on claiming in my earlier years of freelancing were renter’s insurance (if you have a home office), business credit card interest and bank fees, and summer camp fees for the kids. I knew that daycare counted as a deduction, but camps do too because you are paying for someone to take care of your child while you work. Books and other education, such as the amount you spent buying Jennifer Goforth Gregory’s extremely helpful book, is also tax deductible. These things add up over a year, and over decades of freelancing. Talk to your tax preparer to get advice on your specific situation. The IRS does have this information, but you have to click through a million pages to find it.

Likewise, Rose says she started getting better results from working with CPAs once she started being proactive. “I started reading up on what deductions I might be entitled to and actively looking for opportunities to reduce my tax burden, then consulting my CPA and financial adviser for guidance on whether these strategies were a good fit for me,” she says. 

Rose recommends the Learn How the Tax System Works section in this Lifehacker article as a good starting point for understanding tax tips for freelancers. “I’m pretty assertive about identifying and claiming deductions now and I suspect that folks who itemize and don’t do this are leaving money on the table,” Rose says. “In my case, after getting hit with a surprise medical bill last year, I researched health savings accounts (HSAs) and then went to my CPA and financial adviser with my research, asking for their guidance. This step is helping to reduce my taxable income for 2019.”

General Advice

1. Separate your expenses
   Even if you aren’t registered as a business, separate your personal and business expenses. It makes it much easier to track and you can start to get to know how much you are actually spending.
2. Track your clients and income
   Keep track of clients and how much you earned from each one because some companies will not send you 1099s even if they are supposed to. And if you earn less than $600 they are not required to send one, which can make it very difficult to figure out your income at the end of the year. You still have to claim the income, even if it is under $600. I use spreadsheets for everything and I have a spreadsheet with a tab for each client where I note how much I invoiced for. I started using QuickBooks in the middle of the year last year, so it didn’t have a full year’s worth of records to draw from, but if you’re diligent about using an invoicing software you should be able to get totals from that. I have a couple of clients, however, who have their own invoicing system that I have to use, so those numbers are not reflected in my QuickBooks totals. 
3. Compare notes
   Come tax time, I create a spreadsheet tab with a list of all of my clients. As I receive a paper 1099 or a digital 1099, I note that and also note the amount, so I can compare that with my records. Sometimes you find discrepancies, which can hurt you if they report that you earned more than you actually did. “I wish someone had told me when I was starting out that I’m responsible for making sure those 1099s are correct and if they’re not, I need to reach out to the client to clear things up so they can issue a corrected 1099 if necessary,” says Rose. “This happened again with my 2018 taxes, but fortunately I was able to get on top of it early and get it resolved before filing.”
4. Know the specifics of your area
   Business owners in New York State are required to file an IT-204-LL form if they have an LLC. The deadline is a month before the regular tax filing deadline and comes with a small fee attached. “This is the kind of thing I likely would not have known about if I had not hired a tax preparer,” says Rose. “Although folks in other states may not have this requirement, it’s worth checking to see if they have any similar obligations just in case.” And . . .  the filing fee is a deductible business expense.

None of this will make tax time fun, but if you go into it well-organized and informed, it’s at least, less painful! Rose and I aren’t tax preparers, so we should note that anything in this article does not constitute professional tax advice. The more you know about your individual tax situation, and the more comfortable you are with the person you hire, the better you off you’ll be in future years.

What is your best tax tip for freelancers?