Tag Archives: subcontractors

Timely Tax Tips for Freelance Workers

There is a cost to the freedom you get being a freelance worker. While you can probably fudge on office-appropriate attire and set your own start time (Sleeping late can be a viable option!), there is one thing you can’t avoid if you hope to be successful.

Taxes.

When able to, a lot of freelancers prefer to hire an accountant. There are a lot of things to keep track of; and while tax law for freelancers really is a lot of common sense if you think about it, the problem is that there is really a lot to keep in mind. As a freelancer, you are your own employer. In addition to the usual responsibilities of a working adult — the electric bill, the water bill, the gas bill, and your rent or mortgage – you are also responsible for your obligations as your own employer. This means paying into Social Security and Medicare, and perhaps setting up a retirement account.

We’ve already talked about the self-employment tax . It’s important to keep in mind that because you are both and employer and an employee, that you are responsible for the Employer and Employee portions of Social Security and Medicare, 15.3% of earnings. It’s true that you can offset earnings with deductions; but you need to be as careful about what you pay as you are about what you don’t pay.

Here are a few things to keep in mind that will help you stay organized.

  1. Don’t trust your 1099.

If you earn $600 or more from a client, that client should send you a 1099-MISC. It’s very important that you compare. Look at Box 7 on your 1099-MISC and compare that number to the number you have in your records. If your client claims they paid you more than your records state, go through the steps to verify and get a new 1099.  Remember: the tax burden is on you, not your clients. The IRS won’t annoy them with phone calls and letters. They will annoy you.

  1. Get a separate bank account.

Yes, you work for yourself. It’s your money and if you’re making less than $600 total, you may not need a separate business account. If freelancing is your primary source of income, however, you really should consider getting a separate account. This will save you headaches when looking up transactions. If you use accounting software like QuickBooks, having a separate account will make it easier to download information to plug into your books. It also makes it easier to track business expenses for deductions.

  1. Pay attention to Estimated Tax.

As a freelancer, you will probably have to pay taxes quarterly instead of just once a year. You’re also an employer, remember?

If you’ve been freelancing for more than a year, you can get a good idea of what you should plan on paying by using one of several easy to use calculators on line such as:

http://www.bankrate.com/calculators/tax-planning/self-employed-business-tax-calculator.aspx

or

http://quickbooks.intuit.com/r/free-self-employment-tax-calculator-quickbooks/

It’s not always easy being your own boss. But it’s not impossible. And if you are the kind of person who enjoys the autonomy, then the additional responsibility is part and parcel. The trick is to be as careful with your books as you are with the work you do, and to be smart about it.

GrinchtoGlee

From Grinch to Glee – Make year end easier with these bookkeeping tips

It’s not that your heart is two-sizes too small like the Grinch, but rather that your head might explode from all the year-end bookkeeping tasks on your list. While these to-dos could certainly put your holiday spirit in short supply, we know how and Who can help.

It’s essential that your data is accurate, complete and organized for tax time and the year ahead. But where do you begin?

Like the Whos in Whoville helped Grinch, we offer tips to keep you and your books on the nice list.

  • Evaluate your financial standing

Review profit and loss, your balance sheet and general ledger. Make sure they aren’t mangled up in tangled up knots by checking that all transactions have been recorded and posted to the proper income, expense, asset or liabiity accounts. Also check the accuracy of your accounts receivable and accounts payable, and write off uncollectible debt so as not to overstate your income (especially if accrual based), and overpay the You-Know-Whos.

  • Complete bank reconciliations

Make sure your checking, savings and credit card accounts have been reconciled. Loan interest should be separated from the principal and accurately logged. And a decidedly, non-grinchy trick: reconciling monthly makes it easier to catch errors.

  • Review Personal Expenses

You shouldn’t, wouldn’t, oughtn’t, mustn’t mix your personal and business expenses (although for the Sole Proprietor it’s often a necessity), so look at your expenses closely and if that’s the case find receipts and/or cancelled checks and log the expenses in your books. Then watch your heart grow because you avoided paying extra taxes.

  • Review Subcontractor Services

If you’ve hired any Whos who are Sole Proprietor’s or LLC’s, for contract services totaling more than $600 during the year, you’ll be required to send them a 1099 Misc form. It’s a best practice to send each new subcontractor or vendor a W9 at the time of hire to ensure you have complete address information and either their Social Security Number or Federal ID Number information on file.

  • Take Inventory

Review your inventory during the last month of the tax year and make necessary adjustments to align the inventory account of floofloovers and whowonkas to match the items in stock.  Your inventory value should show the cost price or price paid rather that the selling price for your items.

  • Create a Filing System

It may sound overly simple and antiquated, but we know an organized system for easily accessing the documents you need, when you need them come tax time will make you happy as a Who.

As you celebrate the close of 2016, it’s also time to look to the year ahead. If one of your goals is to have more flexibility and time to achieve your personal and business goals, consider the advantages of having a Bookkeeper. Not only an excellent resource to simplify your financials and ensure accuracy, a Bookkeeper can also be a personal advocate, a partner as loyal as Max, and someone to help you make your Holidays mean a little bit more for years to come.