One of the most daunting aspects of setting up your own business is learning how to manage your books and complete your taxes. In my own experience as a self-employed writer, I’ve learned first-hand how easy it is to let day-to-day book-keeping slip down my list of priorities when I’m busy completing work for clients, marketing my business and networking.
Unfortunately this resulted in spending a few frantic coffee-fuelled days before the deadline doing almost a year’s worth of financial admin and double-checking what I needed to do to submit my taxes correctly.
If you want to avoid finding yourself in a similar situation, the first thing you need to do is get clear on what you need to be doing and when.
Dates and Deductible Expenses
Knowing the dates for tax deadlines is essential. If you file late without an extension you will have to pay a penalty on top of any taxes you owe.
From day one, you need to know what you can claim as tax deductible business expenses. Not keeping track of these can mean that you’ll pay too much tax. It can also mean that you won’t have a clear understanding of how much your business costs to operate. This is vital to making sure that you’re setting your rates at the right level, something which many new self-employed people struggle with.
As well as deducting expenses like office rent, marketing and professional services, you can also claim for attending conferences and business travel. If you claim for office equipment, you need to keep a note of why it is necessary for running your business.
If you work from home, you might be entitled to claim a portion of your housing costs. There are strict eligibility criteria though. If you’re just setting up your home office it can be worthwhile familiarizing yourself with this criteria, as for instance you wouldn’t be entitled to claim if you used a corner of your dining room but you might be if you turned an entire extra bedroom in a dedicated office space.
Always keep receipts, not just account statements, even after you’ve filed your taxes. Although this might sound like a very simple tip, I found that investing in an expandable file where I could store receipts by month made doing my taxes and bookkeeping much simpler.
While some of the tax forms which you need to submit as a self-employed person might be familiar, you’ll also need to fill out some new ones. These include Form SE for federal self-employment taxes and any local taxes you might need to pay.
Don’t worry if all this seems incredibly confusing. In my experience, the majority of self-employed people felt this way when they first started out, including the ones who went on to run very successful businesses.
This infographic guide to tax for freelancers shows you exactly what you need to be doing, which expenses are allowable business deductions and which forms you need to complete.
Infographic courtesy of eSmart Tax
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