How to Organize Your Freelance Taxes

The following is a post by MPFJ staff writer, CJ, who blogs at thesingledollar.com about personal finance, budgeting, frugality, and debt repayment.

Disclaimer: I’m not an accountant or tax professional!

I used to absolutely dread tax season as a freelancer. I worked on movies and plays; they usually only lasted a month or six weeks, so at the end of a year I would have had many employers. One year I had ten W-2s and 1099 forms to deal with, not to mention income from a few jobs that didn’t send me a form at all!

Getting organized makes all the difference in a situation like this. Don’t be a stressed-out mess by April 15 this year; instead, give these steps a try now.

1) Collect incoming paperwork.

Hopefully most or all of your employers will send you an official statement of your income from the previous year. In the United States they are legally required to do this by January 31. As each form shows up in the mail, put it into a folder marked “Tax Forms 2015” (or whatever year).

2) Check your income paperwork.

In early February, make a list of all your employers and other income sources for the year. Ideally you can check a calendar, budget, or other record you’ve been keeping — but if you haven’t done this, look at your bank statements online and look for large deposits to jog your memory. If all else fails, visualize each month of the preceding year and try to remember what you were doing! When you have the best list you can get, check to make sure that you have a tax form from each employer and that the total income numbers on it are accurate.

• If you see a mistake, call the employer (their number will be on the form) and ask for a corrected form. If you are missing a form, try to get in touch with the employer and ask about it.

3) Check Your Expenses.

If you’re a freelancer, you will also need a list of deductible business expenses. Ideally, you can make this list from a folder of receipts you’ve been keeping all year…but if not, you’ll need to figure out what you can claim. There are a lot of special rules about what is claimable, so it’s a good idea to consult a CPA who specializes in freelance workers (ask your friends who they use.) You will need proof of the expenditure to claim most expenses.

4) Research Which Forms You Need to File.

Many freelancers have both W-2 income and 1099 income. You can deal with your W-2s on the basic federal and state forms (1040 for federal). However, 1099 and other miscellaneous freelance income typically needs to be reported on at least one other form. The federal forms are Schedule C and Schedule SE, but your state will probably also have a separate form or three. An accountant or good tax software can help you with this, of course. The IRS has a site for self-employed/small business filers and your state department of revenue website should also have information for you.

5) Set Up a Better System for Next Year.

It’s too late to go back in time and keep really good records in 2015, but it’s not too early to start getting ready for next year’s taxes right now. If you’re a freelancer, I want you to go directly to your desk and label three folders:

•  Business expenses/receipts 2016
• Credit card statements 2016
• Paystubs 2016

Then, on your computer, make a spreadsheet labeled “Income 2016.” Every time you get freelance income, list it in this spreadsheet, and file any relevant paystubs in the right folder immediately. Then, when January 2017 rolls around, you’ll know exactly what happened in 2016!

Special Note: Quarterly Taxes. If you are a freelancer, you may be required to file quarterly taxes during 2016. (Your accountant can advise you about this.) If you have to file quarterly in 2016, your first payment and form will be due April 15 — the same day as your full tax return from 2015! If you think you might need to file quarterly taxes, it’s especially important to be organized now so that you’re not scrambling to do two sets of paperwork at once.

Good luck with tax season, freelancers! Do you have a freelance tax-filing horror story? Can anyone beat my record of 10 official employers in a year?

***Photo courtesy https://pixabay.com/static/uploads/photo/2015/02/23/20/12/taxes-646512_960_720.jpg