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.
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.
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!
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.
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.
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?
I view my role as more than an independent contractor for hire — I become a part of your team. You’ll find that I dig into the details to understand what’s important to you — and your customers. I embrace collaboration, communicate openly, and craft content to help you achieve your marketing and business goals. Read More...
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