4 Tips To Help Solopreneurs And Freelancers Survive Tax Time

stressed business woman with hand on head looking down on desk

Another tax season wrapped up for Dawn Mentzer Freelance Writing, LLC.

 

[Sighs with relief.]

 

Over my past seven years as a self-employed freelancer, I’ve experienced the good, the bad, and the downright ugly. I’ve learned some lessons—some painless, others excruciating.

 

I’ve listed them here, in hopes they might help you and other solopreneurs avoid stress (and distress) through your tax preparation process.

 

Four Tax Time Survival Tips For Freelancers and Solopreneurs

  1. You don’t know what you don’t know.

Unless you are an accountant or professional tax advisor, I recommend getting help. Reputable professional tax preparers/advisors are on top of the latest changes and rules. They know what business expenses are deductible and whether you’ve categorized them appropriately. Having someone with that knowledge to guide you and raise red flags on bookkeeping that’s amiss can potentially save you from falling into hot water with the IRS and state. And recognize that bigger doesn’t mean better. I used a larger accounting/tax preparation firm, but after a few years of not getting timely responses to questions and being treated like just a number, I switched to a solopreneur tax adviser/preparer. He has been far more thorough and attentive—and less expensive.

 

  1. It pays to keep your act together all year long.

The more organized you are year-round, the more painless the tax return filing process will be. Track your income and expenses when they occur rather than allowing deposit slips and receipts to pile up. For my business, I use QuickBooks online, which I’ve found to have intuitive software with the intelligence to automatically categorize expenses correctly through ‘remembering’ what I’ve entered in the past. Regardless of what system or software you use, you need to put forth effort to make sure you haven’t missed anything that will impact your taxes. Good luck to you if you ignore that responsibility until tax time is upon you!

 

  1. Yours and your clients’ records might not match.

It happens. For example, I discovered a client mistakenly included a payment they made to another vendor in the amount on my 1099. I also had a client who included payments made in the new tax year on the 1099 for the tax year prior. To make incidents like these less of a hassle, consider confirming 1099 amounts with your clients before they send their forms to you. I’ve discovered it’s far easier to verify their records match yours in advance of when they or their accountants prepare and submit their forms. By doing so, if you find discrepancies, you and your clients can investigate and correct them right away. If errors are in your clients’ records, you’ll save them the trouble of issuing a corrected 1099. If the errors are in your records, you’ll be able to make the correction and ensure you’re including accurate income amounts on your tax return.

 

  1. What you don’t know could hurt you.

Twice—that’s right, twice—in my seven years of self-employment, I underestimated my revenue and I failed to pay enough tax. As a result, I had to write a substantive check to Uncle Sam upon filing my taxes for those years. That hurt—especially because I had to also cut a check for my quarterly estimated tax payments by April 15. Double whammy! My suggestion to you is to watch your net income closely and adjust your quarterly estimated tax payments if needed so you’re not stuck owing a bundle at tax filing time. In my case, I’ve found checking in with my tax advisor mid-year has helped. I send my profit and loss statement and other info as requested to him at least once during the tax year, so he can let me know if I should increase or decrease my quarterly payments.

 

Keep Calm: And Make Tax Time Less Taxing

Paying taxes is not the most glamorous part of having your own business, but that doesn’t mean it needs to be a massively difficult ordeal. I hope considering these lessons learned along with getting the help of a qualified tax advisor will help you minimize some of the stress that accompanies tax time.

 

Your turn! What tips can you share with other small business owners to help them make tax time less tumultuous?

Three Sure-Fire Cost-Cutting Moves For Solopreneurs And Small Business Owners

Ever since I started my own solo business, something a SCORE mentor said during a startup workshop six years ago has stuck Dollar bills graphicwith me:

 

“Money is the language of business. For your business to thrive, you need to learn to speak the language.”

 

He didn’t mean that all that matters in business is the money, but rather that your business financials tell how effectively you’re running your business. You need to have some understanding of profit and loss and other accounting basics.

 

No business is too small to care about profitability. Even for a very small business like mine, a healthy profit matters.

 

But what if, like me, you only have so many viable options for increasing your revenue without adding headcount or complexity to your operations? How do you boost your profitability then?

 

I think you already know the answer: Cut costs.

 

Three Ways Your Small Business Can Cut Costs

 

Think Before You Spend

Is it a “must have” or a “nice to have”? Obviously, the “must haves”—the things you need to do your job and keep your business running—shouldn’t be ignored. But the “nice to haves” can usually wait.

 

Before you buy, ask yourself…

 

  • Do I need this to effectively create or deliver my products and services to my clients?
  • Will my brand be at a competitive disadvantage if I don’t buy this?
  • Can I make more money if I buy this?
  • Will I use this?

 

This applies to anything and everything—from business software to networking group memberships.

 

Use Tools That Free Up Your Time

When you’re running a very small business, especially one that’s service-based, your time IS money. The more time you spend on the administrative and marketing aspects of your business, the less time you have to spend on revenue-producing work. Over the past several years, I’ve been using—and have seen others use—a number of online platforms and mobile apps that make various tasks far less cumbersome and time consuming.

 

A few you might want to check out include:

 

Quote Roller powered by PandaDoc – Online software for generating proposals and securing contracts

 

With Quote Roller becoming PandaDoc in 2015, the software also provides sales document management capabilities. I’ve been using Quote Roller for the past two years to send proposals to clients, which then become executed agreements when they sign off with their electronic signatures. With the ability to save pre-written text blocks to a library for future use, the platform makes it far quicker and easier to “roll out” proposals than crafting all pieces from scratch.

 

Trello – For coordinating efforts and managing projects

 

I’ve used several other project management tools when clients have insisted, and I have yet to experience one that is more streamlined and straightforward than Trello. The drag-and-drop interface and simple collaborative features have helped me keep projects with multiple moving parts and players well organized and on track.

 

QuickBooks Online* – For invoicing clients, recording all business financial transactions, and keeping tax information in one central place

 

I’ve used this for the past three years and I enjoy the intuitive interface in addition to the peace of mind that all of my financial data is automatically backed up.

 

Invoice2go – Mobile app providing the ability to invoice clients immediately onsite with a debit or credit card

 

Invoice2go can save entrepreneurs time and help them get paid faster by giving them a convenient, on-the-spot way to take care of business. I haven’t used this app because it’s rare that I would need to invoice clients at their locations, but I can see how it would save other small businesses a lot of time and headaches.

 

Hootsuite – Social media management tool for posting to and monitoring activity on social media platforms

 

I primarily use Hootsuite for keeping up with the fast pace of Twitter. It has saved me gobs of time, enabling me to see activity of users on my various Twitter lists through a single dashboard. And I don’t know what I’d do without the Hootlet browser extension. With it, I can compose and schedule tweets to share content directly from the web pages I’m visiting.

 

Shop Around For The Best Deal

I feel almost silly including this tip, but I know people who buy from the first place they find an item if the price sounds reasonable enough. As you’re equipping your office, whether it’s at home or at another site, look for sales and special deals in print and online. It just seems wrong to buy anything (especially big ticket items like copiers/printers, computers, etc.) at full retail price when there are ALWAYS deals somewhere at all times. Yes, it may take a little research and time, but what you save will likely make it well worth your while.

 

Frugality Pays Off  

Don’t confuse frugality with being cheap. There’s a difference.

 

If you’re frugal, you’re economically savvy and conscious of getting the best products and services at the best possible price.

 

Cheap means wanting whatever costs the very least regardless of quality.

 

Frugality will give you the wherewithal to cut costs without compromising your business integrity and reputation.

One Easy Way To Save Yourself And Your Clients From A Headache This Tax Season

While most clients have their accounting act together, some don’t—and that can create problems for you as an independent contractor when it’s time to prepare Woman with headacheand file your tax returns.

 

I’ve gotten 1099 forms at the end of the tax year that either under- or over-reported the “nonemployee compensation” clients paid me throughout the year.

 

If the income records you report and those of your clients don’t match up, it’s a big deal. If they under-report, they’ll be paying more tax than they should be. If they over-report, it will bring you a boatload of aggravation. You’ll be stuck backtracking through records to show them where they made their error(s), and then you’ll need to wait until you get a revised 1099 before you can file your taxes. The income in your accounting data (whether in a system like Quickbooks, in Excel worksheets, or logged manually in a notebook) needs to match what your clients are saying they paid you.

 

After getting several inaccurate 1099s last year and dealing with the headache (and putting my clients through the hassle) of requesting that they be reissued with the correct information, I decided to get proactive in confirming our information is in agreement this year.

 

Here’s how…

One Easy Way Solopreneurs Can Make Tax Season Less Painful

Whether you use Quickbooks, Excel, or some other method of tracking your income by customer, export or create a file that shows (at the very least):

 

  • Dates payments were received
  • Check numbers (or other reference numbers if paid in a different way) associated with each payment
  • Amounts of payments
  • Sum of all payments for that tax year

 

Here’s a sample of what that might look like.

Sample-Client-Compensation-Record

I’ve sent one of these to every client who did at least $600 worth (the magic number for when that income needs to be reported on a 1099) of business with me in 2014.

 

By doing the same, you can show your clients what your records say so they can check to make sure theirs are in sync. That way, if you’re not in alignment, you can investigate and resolve the discrepancy BEFORE they issue their 1099s to you.

 

Keep in mind, whether your clients are doing their own bookkeeping or if they outsource it to someone else, mistakes can—and do—happen. By proactively exchanging information as tax season approaches, you might spare yourself and them from major headaches.

 

By Dawn Mentzer

 

Speaking of sparing yourself headaches, if you’re struggling to keep up with writing blog content that grabs attention and gives your readers value, let’s talk!

 

Image of woman with headache courtesy of stockimages at FreeDigitalPhotos.net

 

Please note that this post is not meant to serve as professional accounting advice. It’s for information purposes only.

4 Things Even the Thriftiest Solopreneurs Should Spend Money On

Solopreneurs by nature – and sometimes by necessity – tend to be a thrifty lot. I resemble that remark. But make no Moneymistake, “thrifty” should not be synonymous with “cheap.” Thriftiness is a quality that leads to smart business, but it shouldn’t get in your way of investing some of your hard-earned cash to move your business forward.

Sometimes in our quest to keep expenses in check and maximize revenue, we overlook – or ignore – functions and foundations of our business that really do deserve some investment beyond our time and the “freemium” options that are out there.

To grow a solopreneurial  business and run it more effectively, there are certain administrative and operational elements that are well worth throwing some dollars and cents at. Some will give you a more credible, professional presence. Some will ensure that you’re maximizing your productivity. Some will ensure that making smart decisions.

Your Website
It’s relatively easy to pick out websites that were “home grown” using a freemium platform. Unless you’re a website designer, my advice is to invest in a professional to create yours so you make the right online impression.

Your Accounting
From tax preparation to bookkeeping, consider getting professional help with these to some degree. Unless you’re in the field or have some serious business accounting background, you don’t know it all. And that can cost you in the long run. Note that you don’t have to go all or nothing, either. For example, you could contract someone to help you set up and train you on Quickbooks, but then manage your entries and reconciliations yourself.

Your Networking
I think a lot of solopreneurs miss out on opportunities because they don’t want to fork out the dough to join local business organizations like Chambers of Commerce. No, the investment doesn’t pay for itself after one or two mixers. But with repeat, regular attendance at events, you’ll build familiarity and trust. And THAT will lead to project opportunities and referrals.

Your Social Media Tools
If you’re active – or want to be active – on a variety of social networking platforms, efficiency and planning is the key to being able to maintain consistency. There are tools out there that offer free versions, but those often have limitations in terms of number of posts you can schedule or accounts that you can manage. If your social media success is hindered by a tool that’s not giving you as much flexibility and capacity as you need, check into upgrading to a premium version that offers more. Personally, I use Hootsuite and upgraded to their Pro version about a year ago. At $5.99 per month, it has paid for itself and then some in the amount of time it saves me.

If you’re just starting out as a solopreneur or are cash-strapped at the moment (it happens to all of us!), be judicious about what you spend your money on. But do keep an open mind – and wallet – and consider investing in things that will help you get your business off the ground and lay a foundation for success.

Your turn! What investments have you made in professional services and tools for your business?

Image courtesy of jannoon028 / FreeDigitalPhotos.net

Have I got a deal for you! Could Bartering Make Sense for your Small Business?

I haven’t paid a whole lot of attention to bartering as a way of business. As I’ve always understood it, to make a barter

LEGS Co-founders

LEGS Co-founders Melissa Monti & Sara Baker offer a better way of bartering. Learn more about them at legsbarter.com

arrangement mutually successful the following four conditions must exist…

  • You need to provide a product or service that someone else wants or needs.
  • They need to provide a product or service that you want or need.
  • You generally need to want or need each other’s products or services around the same time.
  • You both need to provide those products and services in amounts so that the value of what you each receive through the barter is equal.

So, sometimes bartering works out. Sometimes it’s not such a great deal.

But there’s an alternative way to go about bartering – and from what I can tell, it’s pretty much always a win provided your business situation is one that lends itself well to bartering in the first place (more on that a little later!).

Another writer local to my area, told me about LEGS (Lancaster Exchange of Goods and Services), and I’ve had the pleasure to learn more about this organized barter exchange community from its co-founder Melissa Monti. Though I personally haven’t signed up to participate, I believe that LEGS and the bartering concept at its foundation are worth mentioning to other solopreneurs and small business owners. This type of barter system might very well be a GREAT fit for you!

Barter Exchange Networks – A Better Bet!

LEGS is similar to other barter exchanges established internationally. It is not a franchise, but an independent company that uses a software-based system to enable members to post goods and services that they want to “sell” on the virtual trading floor and “buy” those posted by other members (from within their own exchange community and from those in other exchange communities that are connected through the software platform). Products and services are valued at their full retail rate. When someone selects your product or service, your LEGS account is credited for the dollar amount associated with the purchase. You use the credits in your account to buy goods and services that others have made available on the trading floor.

Unlike, one-to-one bartering, LEGS opens up a virtual smorgasbord of trade options. Rather than being beholden to exchange with the person who bought your items, you get to spend your credits on things that you’ll actually use. It doesn’t matter who buys your products or services with their credits, you can use your credits to purchase products or services from anyone else in the exchange. When you do, your account is debited the appropriate amount of credits.

More Bartering Benefits

According to Monti, some business benefits of the barter system include:

  • Expanding your brand’s reach by attracting customers who might not have otherwise found your business.
  • Conserving cash during the “slow” season. If you’ve got a business that has cyclical revenue, you could use trade credits rather than cash to pay for necessities like office supplies, web design, printing services, etc.
  • Moving excess inventory. Got too much of something? Put it on the trading floor. What’s particularly nice about this is that when you set the quantity and value per unit, the exchange software allows other members to purchase specific amounts, and it automatically updates your inventory and credits your account.
  • Driving cash business your way! Your presence in the exchange community raises brand awareness and can corral bona fide leads in your direction.

Who Does Barter Work Best For?

If you take a peek at the LEGS website, you’ll find that nearly every industry and type of business has representation on the trading floor. Photographers, landscapers, attorneys,  bakers, tax preparers, exterminators, massage therapists, web designers and many, many, many more. And you’ll find products and services as diverse as billboard advertising, dog grooming, automotive oil changes, nutritional supplements, and elder care – to name just a few.

The exchange works especially well for new business owners who want to build awareness of their brands, for seasonal businesses (like those in the tourism industry), and for businesses who have unused or unwanted assets.

Solo-professionals who typically don’t find barter to be the best match are those with commission-based services (such as Real Estate and Insurance agents) and independent professional service providers who are at capacity with their cash client base.

Getting in on the Action

You might find that barter exchange networks will likely have a set of terms and conditions that you’ll need to comply with to be a member. Expect a one-time set up fee, though recently-established exchanges like LEGS might waive or reduce that cost to you if you’re one of the early adopters.

Other fees might include monthly membership fees and transaction fees payable in a combination of cash and barter credits.

One More Thing – And It’s a Big One!!

JUST in case you didn’t already know it – The value of the goods and services you sell through barter ARE CONSIDERED TAXABLE INCOME! You need to report your barter earnings to the IRS (and state and local governments if required in your neck of the woods). If what you’re purchasing through barter will be used by your business (for example, website design or copier paper), you can deduct it as a business expense. Stating the obvious, you cannot deduct items like personal spa products or dog treats!

LEGS provides members with annual 1099 forms that identify their income and expenses made through barter for the current tax year, and members can at any time access that information online through their membership account. I expect that’s common of other barter exchanges as well.

Trading My Final Thoughts for Another 30 Seconds of your Time
Is a barter exchange right for you? Do your homework before you decide by reviewing the exchange community’s terms of agreement, pricing, member list and trading floor activity. Also, talk with the network’s administrators to fully understand how the process works. And ask to speak with a few members of the network to find out if they’re finding it advantageous. You might also want to ask yourself these questions…

Will raising awareness of my brand to the members of the barter network benefit my particular business?

Do I have some time and/or inventory available to put on barter and still fulfill my existing clients’ needs?

Are there goods and services offered on the barter network’s trading floor that I truly need or want?

You turn! Have you every bartered one-on-one or participated in an exchange like LEGS? What good – and not so good – experiences have you had with either?

The Frugal Solopreneur: How to Keep Living Costs Down While You’re Building Your Business

Having gone from a cushy corporate salary to what can be a “feast or famine” revenue stream as a solopreneur, there’s

Grocery savings reaped by a frugal solopreneur

Frugal solopreneurs can save BIG on organics and brand names by shopping smart.

one thing that I learned quickly as a new business owner: Every penny counts.

Luckily, savvy saving habits have become in vogue given the general state of our economy. Where at one time it was in to flaunt extravagance, now people respect others for their ability to find ways to get what they need on the cheap. With no shame in wanting to save, why would you not want to flex your frugal muscles?

Here are a few livable ways to trim living costs as you build your business…

  • Brew your own coffee – It amazes me how many solopreneurs, even those who work from home, drive to the nearest Starbucks or Dunkin Donuts for coffee on a daily basis. Is the $4 latte really worth it? Provided you have a coffee maker and know how to steam milk, you can do it yourself and save a bundle. Plus, you’ll save yourself on the fuel expense, too. You’ve seen the prices on the pump lately.

 

  • Cluster – and kill two birds – when scheduling appointments –When you’re scheduling business appointments for any given week, try to arrange them so that you’re meeting on the same day and in the same general area. That will not only keep gas expenses in check, but it will also cut the time you spend in transit. Bonus!

 

  • Shop discount grocery first, conventional grocery stores second – I’ll be honest, not too many years ago I would have NEVER stepped into a discount grocery store. But I’m on board now. We’ve got two in our area that offer tremendous variety and quality – especially on a lot of organic and gluten free products that typically cost an arm and a leg at health food stores. My M.O. is to shop at these stores first to buy whatever we can find there that’s on our list…and then my husband goes to the regular grocery store later (with coupons in hand) to pick up whatever else we need. The only downside to the discount stores is that they have a revolving door inventory, so a favorite item might be there today, but gone tomorrow. And be sure to check expiration dates!

 

  • Wear it again, Sam  – Recycling is fashionable – and stores like Goodwill and thrift shops are all the rage. Way before I started freelancing, I was a thrift store junkie. Seriously, it’s a rush to find really cool brand name clothes for “pinch me I must be dreaming” prices. Yes, it can take some time and effort to dig through the racks to find your size and specific pieces that you like, but it’s very worth it in my opinion. Treat it like a treasure hunt – there are gems to be found.

Whether you’re a brand new solopreneur or have been in business for a longer while, smart spending and saving never go out of style. In a way, it’s become a bit of a game…maybe even a sport…for my family. Bragging rights to whoever makes it to the end line with the best deal this week!

Has being in business for yourself made you more frugal? How have you cut your living costs to get more for your dollars?