Tax Tips & Tools for Web WorkersBy
For the first few years that I worked for myself, I did my own taxes. Each year we bought Turbo Tax, plugged in our numbers and boom, we were done. Then we added a rental property, my business grew, and we added a few kids to the mix. I was feeling overwhelmed so I hired an accountant to help me do my taxes.
I was amazed. I was paying someone a lot of money to do exactly what I had done myself the previous years. He asked all the same questions the tax software did and I gave him all the same answers. He even complimented me on how organized I was! Right there is the secret! Get organized, know what you can deduct, and you may not really need that accountant.
The next tax season I fired him and went back to doing things my way. After almost 13 years of working for myself, from home as a freelancer, I have learned a few things.
1. GET ORGANIZED!
It doesn’t matter what system you use – find what works for you and stick with it! I am a big believer in the one basket method of filing. I store all my receipts and statements for the year in one big basket and then I designate a weekend in February and go through the entire thing – tossing what I don’t need, filing what I do need and entering tax related info into my almighty spreadsheet.
I now do all my invoicing to clients through FreshBooks. I can print out all the reports I need for the year very quickly and I know I am not missing anything. Additionally, FreshBooks now lets you track your time and expenses, making it even easier to grab the numbers you need at the end of the year.
I pay as many expenses as I can for my business using PayPal or one single business credit card for easy reference and documentation.
Once I have gathered all my numbers, I drop them into a spreadsheet with income, deductions by category and save it for easy reference as I go through the data entry process in the tax software. It was a pain to set up the first year, but easy after that.
2. KNOW WHAT YOU CAN DEDUCT
When you first start doing freelance, blogging or web work in general, it can be tricky to decide what you can deduct and what you can’t. The best rule of thumb to follow is this – if you bought in order to help you do your job, then you should be able to deduct it.
Some things you may have overlooked include:
- Internet access fees (ISP, cable, etc)
- Web hosting fees (if you have a web site you can deduct the cost of your domain name, hosting and any related fees)
- Fees for productivity tools such as FreshBooks, BaseCamp or HighRise, premium services you use (such as pMetrics for your web statistics)
- Software costs – any software you purchase for your business, including your tax preparation software, can be deducted
- Subscriptions to professional journals, premium user/niche forums, or similar services
- Books or e-books you purchased to help you learn new skills or gain new insight on your niche
- Fees for art (from iStockPhoto or similar) you may need for your website
- Fees for premium WordPress themes, templates or custom design work
- Advertising – purchase of business cards, banner ads, PPC, Facebook ads, etc
- Any business related bank or PayPal fees
- Credit card interest on business purchases
- You CAN NOT deduct the cost of your primary phone line to your home, however you may deduct the cost of your cell phone and its monthly fees and any VOIP or Skype fees you may have
- Office supplies – from pens, notebooks, paper and everything in between – if you use it in your office for your business, you can deduct the cost of it
- Repair fees – if your business laptop, computer, printer etc need to be repaired or replaced, you can deduct it
- Legal and professional fees – if you pay a bookkeeper, accountant, seek legal counsel for your business or anything along those lines, you should be able to deduct it
- Childcare – if you have kids and pay for childcare, private preschool, or similar while you are working, it is a deductible expense.
- If you have a dedicated space that you call your office (i.e. it has doors and no Legos or crayons in it), you can do the home office deduction. Be careful with this one – especially if you can not prove that it is used ONLY for your office.
- Meals & travel – again, use common sense. If you meet a friend for coffee or dinner and discuss business, document and deduct. Same goes for travel to work related conferences, meetings, and such.
3. DON’T PROCRASTINATE
Don’t wait for the last minute to get your taxes done! Get them started in plenty of time so that if you need additional guidance you can get it. If you do wait until the last minute (or even if you don’t), you might want to know that Amazon sells Turbo Tax as a software download which will save time and money.
Additionally, Intuit, the makers of TurboTax are giving away $300K in small business grants and some more cool stuff. You can get all the details at Sparkplugging.com.
Remember, I am not an accountant or tax professional, so be sure to do your research and use common sense when filing your taxes, but hopefully this article has helped you identify ways to make tax time less stressful and deductions you may have overlooked.