Do you have a lot of medical bills that you pay on each month? Could those medical bills be deducted from your tax bill this year? I was helping my mother take care of all of her finances after my dad passed away. I didn't realize how many bills she had coming in each month for medical treatments that my dad had undergone months, even a year earlier. I started doing some research about medical bills and tax deductions. If you have medical bills, take a minute to read through this blog to gain some knowledge that can help you decide what you can do when tax time comes around.
Freelancing offers many benefits. From working your own schedule that offers flexibility for you and your family to realizing a life-long career goal, the different benefits are easy to see. However, freelancing can pose some issues without proper understanding on how to plan and budget. If you are part of the 35 percent of workers in the United States who are considered freelancers, learning a few tips to help with your accounting will be imperative to your business's success. Here are a few accounting tips all freelancers need to know.
Save for Taxes
When you are employed traditionally, taxes will be deducted directly out of your pay. When you are a freelancer, you are self-employed, so you will need to pay taxes on your own.
Fortunately, you have options when it is time to pay your taxes. Many freelancers choose to pay their taxes quarterly. Or, you can file and pay your taxes once a year, which will be during normal tax season.
Of course, figuring out how much you will need to pay can be complicated for freelancers, especially when you are new to this type of work. Therefore, consulting a company that offers accounting services is best to ensure you pay the adequate amount in a timely manner.
It is important to remember that you will need to account for both federal and state taxes. Also, make sure you are paying taxes on your actual profit, not necessarily your income. The total profit is determined by subtracting your business expenses from your business income.
Claim Expenses
Keeping track of all your expenses is key to your business's success, but these expenses are crucial when it comes to filing your taxes.
Make sure you are saving receipts from all of your purchases and services used for your business all through the year. For example, if you purchased office furniture, a new computer, or a new piece of equipment for your business, these expenses can be written off on your taxes, reducing the amount of taxes you will owe.
Many freelancers are unable to claim expenses because they do not organize their receipts during the year. Thankfully, you do not need to accumulate a large array of paper receipts, since there are so many computer programs and smartphone apps for this task. Consider scanning your receipts into your computer or onto your smartphone to store your expenses in a more effective and organized manner.
One common expense many freelancers forget about is their home office. A home office deduction can apply in certain situations, reducing the amount of taxes you will need to pay.
Home office deductions apply only if your office is used solely for business purposes, so it cannot be a computer desk in your living room or a separate room that is also used a guest bedroom.
Invest for Retirement
If you are employed in a traditional manner, your employer will most likely offer some sort of retirement savings plan, such as a 401k. As a freelancer, you will not have an employer-sponsored 401k, but you still should be investing for your retirement.
If you are leaving a job with a 401k plan, consider rolling it over into an IRA. Then, contribute some of your income periodically through the year into this new retirement account. If you do not have an existing 401k, you can still start an IRA to start saving for your future.
Most banks and investment firms offer IRA plans, so schedule a consultation soon after starting your freelancing career.
Freelancing offers many benefits, but your success will depend on proper understanding, budgeting, saving, and planning. This guide and the help of a CPA will guide you through the accounting process for your business.
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