Mark your calendars, April 15, 2009 is fast approaching. Tax time is hell time for most freelancers, but here’s a little hint that will make tax season 2010 seem like a breeze. Grab your pens, kids, this one’s a real brain tickler.
When you see how much you owe in taxes for 2008, make a mental note. That’s the minimum you should consider spending on your business in legitimate, legal expenses for 2009.
You’re going to earn more freelance money in 2009 than you did in 2008 unless you hit bad luck, give up and go back to your day job or just quit trying. Plan on spending more money on your business this year–what’s the point in giving it over to the government when you can take legit, IRS-approved deductions for upgrading your office, advertising your business or hiring casual labor to take some of the donkey work off your plate?
Why did I choose a 2005 calendar to illustrate this blog post? Because I wound up owing the IRS for my earnings in 2005, and if I had just planned ahead and made some crucial investments in my writing business I could have paid far less while giving my work a much-needed boost with a high-speed Internet connection, a GOOD cell phone instead of the crappy one I had put up with for so long, and several other upgrades.
Be smart in 09. Do the math and plan ahead. Make those purchases and promote your business. You should pay all the taxes you owe–but make damn sure you don’t owe as much as you could when there are legit deductions to be had.
First things first: this is NOT tax advice. I am simply telling you what I do to protect myself. Use this info at your own risk and don’t say I didn’t warn you to get the advice of a tax expert before committing to a financial strategy like this. I take no responsibility for…anything every anwhere. Nyah nyah.
One of the best things in the world any freelancer can do for themselves is to–this Monday–gather up all the year’s receipts and tally them up. Compare your deductions to how much you think you’re going to owe on your 2008 tax form. If you don’t know how to do that, consider how much money you made this year, calculate approximately 22% to 28% of that sum as your taxable income. If you made 30K this year, chances are you’ll be closer to 22%. If you made more than 50K chances are you’re edging closer to 28%. (These are guesstimate figures, folks. Do your homework.)
Once you have a number, take a good look at your office equipment, your desk, your phone, and anything else that might need to be repaired, replaced, upgraded or purchased as a legitimate enhancement to your business. Do you have a resume website? Are you conducting business on your home phone instead of a dedicated line? Does your computer have a date stamped on it older than 2005?
If you are in dire need of some additional deductions, consider making some FY2008 last-minute purchases that legitimately apply to your freelancing business. You have two choices–you can pay the money you’d spend (and legally deduct) to the government, or you can take any deduction you’re entitled to by law and improve the state of your freelancing business in preparation for 2009. Continue reading Strategic Tax Write-Offs