Freelancers

[Sneed]

I'm gradually picking up more and more freelance projects and was just wondering how you big-time or full-time freelancers here on SportsJournalists.com go about staying organized with all of that. Keeping track of what's due when, who's paid you and who needs a broken thumb or two, tax records, etcetera etcetera. What is your home office setup like, if you have one?

 

[ringer]

If you know how to organize and pay your bills, it's kind of the same deal.

I'd also recommend keeping a record of every invoice and check stub because tax time is pure bliss. 1099 heaven! (Be forewarned: Not every company will send you a 1099-MISC if they paid you, say, less than 500 for the year.) There's a good chance you will have to pay estimated taxes on the income every quarter, too.

 

[playthrough]

I keep an Excel spreadsheet with projects, due dates, fees and when I'm paid. It's not fancy but it keeps things straight. I keep a mileage book and shove all work-related receipts into a folder. I wouldn't dream of doing my own taxes with all the deductions (home office, supplies, travel, etc.), but I compiled all the '08 info for my accountant the other day and it only took a couple hours.

And yes, if you start getting a lot of income from freelancing, kick a little to Uncle Sam every quarter or you'll hate yourself in April.

 

[txsportsscribe]

And yes, if you start getting a lot of income from freelancing, kick a little to Uncle Sam every quarter or you'll hate yourself in April.

unless required by tax laws, why wouldn't you just put 25% from every check into some kind of account dedicated to the irs? sure, the interest you'd make might me minimal but it's more than 0%. why give the govt. your money any sooner than you have to?

 

[silvercharm]

because there is a tax penalty if you don't contribute at least, and I believe it is, 90 percent of your estimated total tax bill by Jan. 15. they penalize by the quarter, too.

 

[txsportsscribe]

well that sucks

 

[Hillman]

The self-employment tax rate is 15.3%, double the FICA rate because there's no employer match.

Self-employed workers do get a tax break, however. Half of their self-employment tax is deducted in computing adjusted gross income.

I suggest investing $20 for a tax program such as Turbotax that walks an individual through the return. It's much cheaper and easier than hiring a professional preparer.

 

[Joe Williams]

And yes, if you start getting a lot of income from freelancing, kick a little to Uncle Sam every quarter or you'll hate yourself in April.

unless required by tax laws, why wouldn't you just put 25% from every check into some kind of account dedicated to the irs? sure, the interest you'd make might me minimal but it's more than 0%. why give the govt. your money any sooner than you have to?

The folks I know trying to make a go of it by freelancing start out with the intention to divert 30 percent of it to quarterly tax payments or next year's tax bill. But then silly distractions like groceries, mortgage, car notes, heating and electric bills crop up, and that plan gets derailed. So they have to scramble and dig deep on April 15.

 

[playthrough]

And yes, if you start getting a lot of income from freelancing, kick a little to Uncle Sam every quarter or you'll hate yourself in April.

unless required by tax laws, why wouldn't you just put 25% from every check into some kind of account dedicated to the irs? sure, the interest you'd make might me minimal but it's more than 0%. why give the govt. your money any sooner than you have to?

The folks I know trying to make a go of it by freelancing start out with the intention to divert 30 percent of it to quarterly tax payments or next year's tax bill. But then silly distractions like groceries, mortgage, car notes, heating and electric bills crop up, and that plan gets derailed. So they have to scramble and dig deep on April 15.

That was me on my first tax day as a full-time freelancer. I just didn't know sh*t and paid dearly. But for years my accountant has set up a quarterly plan for me and I stick to it as if April 15 was a 4-times-a-year occurrence. Because it really is if you're on your own. Paying the non-payment penalties is just flushing money away.

 

[Sneed]

What exactly do you get hit with non-payment penalties for? "Not paying...." Yeah I caught that. But what, exactly, and when? Just not reporting all of your income? Do you have to pay taxes more than once a year? What do you guys mean by setting up a quarterly plan?

 

[playthrough]

You get hit for non-payment penalties because you can't just hoard all your freelance cash and write a big check on April 15. The government wants its cut more regularly than that. I don't know what the penalty is, but like silvercharm said, you have to have paid the bulk of your tax nut well before April 15 or you'll get hit for something.

If you owed, say, $6k in taxes one year, you should set up a plan for the following year of $1500 per quarter to the Man. The gov't has forms for it, of course.

 

[PCLoadLetter]

The self-employment tax rate is 15.3%, double the FICA rate because there's no employer match.

Self-employed workers do get a tax break, however. Half of their self-employment tax is deducted in computing adjusted gross income.

I suggest investing $20 for a tax program such as Turbotax that walks an individual through the return. It's much cheaper and easier than hiring a professional preparer.

My wife is a freelancer. The last time we tried TurboTax it told us we owed Uncle Sam more than $3000. We went to a tax pro with experience doing taxes for journalists and ended up getting a refund.

If you have someone who knows what he or she is doing, I think the paid preparer is the way to go.

 

[zebracoy]

Keep track of absolutely every little thing you do, too - not just phone bills and gas receipts. Keep track of the lengths of cell phone conversations. Jot down the miles you drive, where and why. Track how much it costs to park certain places, how often you're on that wireless card and why, etc.

By the time your taxes roll around, you should have a good approximation of how much you can deduct. Last year, nearly 40 percent of the miles I put on my car that weren't work-related were freelance-related. Plus, you can write off your car, computer, camera, etc. as well.

 

[Hillman]

You certainly made a wise choice to get a second opinion. Turbotax seems very simple to me, but I've worked with taxes longer than I've written freelance pieces.

 

[PCLoadLetter]

You certainly made a wise choice to get a second opinion. Turbotax seems very simple to me, but I've worked with taxes longer than I've written freelance pieces.

And to be fair, we're quite far from being tax experts. If you're at all well-versed in tax preparation you could be catching a lot of things with TurboTax that we missed.

 

[MU_was_not_so_hard]

This may sound too simple and easy, but it's saved me more headaches and gotten me more on my return than anything else:

Hire a really good accountant.

I'm on my second cycle as a full-time freelancer. The guy, someone my sister suggested, gives me suggestions for write-offs, etc., that essentially take care of my taxes every year (and then some). Despite paying that 15% or so on my own, I still pulled in a solid chunk of change last April from write-offs and credits
I pay him between $100 and $150 bucks, and in a few weeks, I get a chunk back. I also have a guarantee from his work that is nearly fool-proof. If he screws up, he'll pay the difference.

Accountants are one of those things people fret over not thinking they can afford. For the amount of money just about anyone on this board is making, it really is one of the best investments you can make.

 

[Hillman]

$150 is relatively cheap for an accountant. But if the source data is well-organized, it cuts the preparation time down considerably.

Most solo guys bill $100 per hour. If you use a firm, the juniors probably start at $60, and the top dogs get $250 or $300.

Every accountant I know uses some type of tax software now. Returns that formerly required four to eight hours can be turned out in two or less. I pity someone who suffers a tech breakdown during tax season.

 

[In Exile]

As a 15 year freelancer, I've used an accountant for 12 or 13 years. Usually costs me about $400. I do business use of home, etc., etc.

Worth every penny. And yes, you have to pay quarterly, even when your income for the year doesn't arrive regularly. Example? In december I was told to expect a contractual regular payment I receive for some work "in a few weeks," a substantial sum that I usually use to pay my April quarterly and any other liabilities I might have (because if you estimate your taxes for the year will be $6000, and then you have a better year and your tax burden is $8000, in April you have to pay it). It's not here yet, and there is little I can do to pry it from the company. So now, not only do I not have the money available for any outstanding liability, but I also have to pay taxes on it (even though I haven't received it) because I will receive it sometime in 2009.

 

[Mark2010]

What range of income are you referring to here?

I'm not at all sure my measly income from freelancing is going to vault me into that stratosphere. If so, I'd be royally screwed because I didn't keep track of mileage, cell phone calls or other expenses. Call me stupid, but I never intended for this to become a primary source of income, just a small supplement until I landed my next regular job.

 

[In Exile]

If you're making a profiut from free lancing - even if it is just a few thousand dollars, it is to your advantage to take advantage of every tax break you can, and if you nare just throwing up your hands and saying, "It's too complicated for me to keep track of," I guarantee you that the money you spend on an accountant will be offset by your tax savings. Otherwise you are giving away money - you have to declare the income, you you may as well declare every legal expense.

Example, say you make $2000 a year freelancing, either by itself or in addition to a day job, in or out of the business. If you have a dedicated office, you can deduct that percentage of your housing expenses, including utilities.. use of cell phone? Deductable. Magazine and newspaper subscriptions? Deductable. Books purchased., postage, copies, that new laptop? Ditto. In fact, you may even have more deductions than income - that's okay, you are then tax free... You just have to show profit one of every four years.

This is generally where someone jumps in and says "You'll get audited!!!" Don't lie, and just be squeaky clean.