Whether they’re forcing an Uber or designing sites, earning merely some additional money on the other hand or six figures via contract work, the freelancers of today have become an essential component of the American work force. One in three workers — more than 53 million people — currently earn freelance earnings, based on the Bureau of Labor Statistics.
The rise of the sharing market as well as the ease with which workers are today matched by technology platforms with clients has helped fuel the growth in independent contracting. The capacity does not hurt, either. About 3 million workers, 18 percent of employees, earned more than $ 100,000, according to a report by MBO Partners last year.
It means taxes on income that is considerable while freelance work includes a lot of advantages, like the ability to choose clients and a flexible schedule. “The principles for independent workers are as complex as some in the tax code,” states Mark Steber, primary tax officer in Jackson Hewitt. “However, they’re also arguably the most helpful.”
Though the audit risk is low (the IRS audited significantly less than one percent of small businesses annually), should youn’t know those complicated rules, you might be missing out on valuable deductions and the chance to keep more of your own earnings. Keep reading for some suggestions on how to get with the smallest amount of pain possible through taxation period if you are a member of nation.
1. Start early. The secret to making sure that you’ve gotten each of the deductions to which you are eligible is to keep careful records throughout the year. As any freelancer knows, that’s easier said than done, so get started upgrading your novels and now compiling receipts. “The difficult part isn’t doing your taxes, so it is getting together all your receipts and other records,” states Lisa Greene-Lewis, a certified public accountant in TurboTax.
That will provide you the time to monitor documentation for receipts that have gone missing (suggestion: check credit card and bank statements). Filing early suggests that you are less inclined to become a casualty of taxation ID fraud, and you’ll receive your refund quicker. Plus, you’ll have an easier time locating an accountant before taxes are expected, before they get booked up during crunch time in the past weeks.
2. Get assistance. Given their inherent complications, most freelancers are better off hiring an expert for assistance at the time. If the IRS does come back with questions this will ensure that they’re not missing out on potential deductions, and provide a resource. The pros will be a lot more efficient than you would be submitting all on your own, and a key selling point for freelancers who earn an hourly wage.
While good tax aid can be expensive (at least $100 a hour), an expert who finds one huge deduction for you will easily cover her commission. Look for a person with experience working with business taxes and freelancers. “If you are doing any type of significant business volume, you need to have a tax advisor who can ask and answer questions regarding things you haven’t thought of yet,” says Gil Charney, a manager in the Tax Institute in H&R Block.
3. Declare your earnings. All companies for whom you worked during the year are required to deliver you a 1099 when they paid you more than $600. The deadlines for sending 1099s out has been moved up to January 31, which means you begin to find them or so. Do not forget that you’re still responsible for taxes on any revenue that fell under the threshold, and also for any over it, regardless of whether you get a 1099 or maybe not.
4. Consider your home office. Your home office deduction is one of the most valuable advantages of being a freelancer, but because it enables you to write off not just a part of your home, but also of upkeep costs like depreciation and utilities. There’s also a streamlined deduction available, which can be based simply on the square footage of your workplace, however for taxpayers in regions where housing prices are very high, that could mean leaving money on the table.
For taking this deduction the principles are fairly strict, but so make sure that you’re using a space that’s dedicated to your work. Due to the stringency of these principles, the home office deduction has earned a reputation but experts say there’s no reason. “If you are eligible, you are foolish to not take a home office deduction for a freelancer. It is very valuable, and it opens a good deal of different deductions to you,” states John Vento, a CPA and writer of Financial Independence (Getting to Point X).
5. Benefit from retirement saving chances. Since freelancers don’t have access to your 401(k) program supplied by their employer, the IRS provides several fairly generous alternatives for tax-advantaged retirement rescue. But studies have revealed that freelancers are often diligent about setting up and regularly contributing to retirement accounts. You can put aside money and have it count toward your 2016 taxes if you didn’t put any money away for retirement last year.
6. Get organized for the next year. Filing your taxes is a fantastic chance to look for methods to better your organization and the record-keeping processes you’ve got in place. If you didn’t pay your earnings in 2016 or struggled to locate receipts, begin making modifications like setting up a separate business bank accounts and credit card to simplify the procedure time. “Among the most effective methods to establish and maintain a business as a freelancer is to keep your small business stuff in one account, and your private stuff in another,” Vento states.
Just take some time to speak with your tax supplier about whether you may gain from classifying your business as a different entity (an LLC vs an S Corp., for example), and if you are taking full benefit of the available options to save for your retirement.