Question about freelance finances

Thanks everyone. You've been a big help for once. ;D

 

One of the shops I used to freelance for paid so little it helped me in the long run. It was steady work that I drove a decent amount of miles for, but the pay was enough that I could take care of one big bill per month.

Anyway, since they paid so little and the government viewed me as self-employed, they viewed my business as a loss and I was basically subsidized. Government mileage alone covered the taxes -- especially the two or three trips a year that I topped 100 miles.

I write off everything from a $1 pencil that I buy on the road to a percentage of the printer that prints out directions (no GPS for me), so by the time I get done even some of the taxes from my day job are offset.

I guess getting paid like crap works out for once.

 

Agree with some of the very good advice here. Keep records. Deduct everything. Find an accountant who can advise you well on those things and don't kick yourself for paying him $300 or $350 to prepare your return.

One more thing, though. If you're doing a lot of freelancing, you should think about setting up a self-employment 401k. Again, the tax guy can advise you on this. But the big plus is that you won't pay taxes right now on the money you put in there. Obviously, you'll pay tax on it when you go to draw money out, whenever that is. But if you don't touch it until retirement, that's years down the road. You might also have to pay some fees to maintain that account. But in general it's a way to defer your tax burden in the short term.

 

This year I used an accountant for the first time and the $350 he charged was the best $350 I've ever spent.

When we discussed the quarterly payment structure, he said I shouldn't go that route because I file jointly with my wife (who makes way more money than I do, even when I was working full-time). If I wanted to do the quarterlies, my wife would have to do that as well, which in the long run would negatively effect our overall finances. That could be because I have not set up an LLC or anything like that, but I'm not sure (that's why I hired an accountant!).

I'm sure we got hit hard on the year-end taxes from my freelancing, but we still received a pretty hefty return, so there's no way I'd complain.