Freelancers have it tough around tax time. There’s 1099-NECs, 1099-MISCs (and sometimes 1099-Ks) to sort through from multiple clients, expenses to calculate, estimated taxes to add up, and on and on…
It’s a lot.
That’s why we’re recapping a few of the helpful tips from our webinar Freelance Taxes 101 with tax pro Keila Hill-Trawick, MBA, CPA of Little Fish Accounting. She’ll help you understand some tax basics – all of which can help you as we move into the end-of-year tax season.
Know where you stand
It’s easy to get overwhelmed when it comes to taxes. That’s why simply knowing how much money is going in and out of your business can be a huge first step. “A lot of the fear comes from not knowing how much money you make, or how much things are going to cost,” Hill-Trawick says.
Even if you already have an accountant that files your taxes, Hill-Trawick says knowing more about your business enables you to fully optimize that relationship. “The more you understand about the foundation of your accounting systems, the better questions you can ask to make sure that things are being done correctly,” she explains. She says it can especially help if you’re applying for a grant or asking someone to invest in your business.
When you’re more comfortable with your business’ financial health, you’re also better equipped to make strategic decisions, like knowing when and how to expand your business. “The numbers are just the base,” she says. “You want to use that information to find out, ‘Should I be hiring people? Is it time for me to purchase equipment? Should I lease more space?’ And you can’t know that if you don’t know if your business is profitable.”
Keep your receipts
One easy way to know where your business stands financially is to keep all your receipts. But that doesn’t mean stuffing all of them into a shoebox. “You should keep your receipts digitally,” Hill-Trawick says. “Whether it’s scanning them or taking a picture and saving them to the portal of your choice. Remember, you want to have these for your tax returns, but you want to have them on hand so that if the IRS asks for your expenses, you can actually reply to them.”
It might seem like having your expenses listed on your bank statement will be good enough. Alas, it is not! “A lot of businesses look at money going in and out and say, ‘I’m fine,’” she explains. “But it doesn’t tell you what you spent it on. Did you just transfer money from another account? What did you get paid for? Did you have more than one form of revenue?” Switching to a cloud accounting solution that links to your bank account can help you categorize your expenses, which will automatically move your expenses to the right buckets, and simplify the time you spend on taxes significantly, she says.
Understand your estimated taxes
If you weren’t aware that you should be paying estimated taxes each quarter, this is for you. When you have a job at a company, it’s up to the company to give the IRS all the taxes on your behalf. It’s different if you’re self-employed. “When you’re a 1099 employee or a freelancer, you’re earning money, but the IRS doesn’t know how much you earned. That’s where estimated payments come in.”
So how do you know how much to send the IRS each quarter? “Every quarter, you have to make estimated payments,” she explains. “Most people fall within the 20-25% bracket. For your state, it falls between 5-8%. So about 30% of what you make goes to taxes.” Does that sound like a large percentage of your earnings? Maybe it’s time for a change. “When you realize all the money you earn doesn’t go to you, I’m all for raising your prices,” Hill-Trawick notes.
Protip: when you get paid through Wingspan, simplify your estimated taxes by allowing Wingspan to automatically set aside the right amount from every payment. Even better? You can pay the IRS directly from your Wingspan account – and it’s all free. Sign up in minutes here.
We’re just getting warmed up
That’s just the tip of the (tax) iceberg! Learn more from Hill-Trawick about everything from standard vs. itemized deductions to the simple things you can do to get your business on the right track tax-wise – all on the Freelance Taxes 101 webinar.
And you can make things easier on yourself by using Wingspan, which supports your business with invoicing, bookkeeping, and benefits solutions, so you can focus on doing the work you love – learn more.
Because reading one article about taxes is never enough:
How to Do Your Taxes as a Freelancer
How to Figure Out if You Should Take a Home Office Tax Deduction
How to Get Organized for Tax Season
*This information is not intended to provide, and should not be relied on for, tax or legal advice. Wingspan is not a bank. Banking services are provided by Lead Bank, Member FDIC. Deposits are FDIC-insured through Lead Bank, Member FDIC. The Wingspan Visa® Debit Card is issued by Lead Bank, Member FDIC, pursuant to a license from Visa USA Inc.Your funds are FDIC insured up to $250,000 through Lead Bank.; Member FDIC.
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