I am a math clown when it comes to doing my self-employment taxes.
How does a freelance artist who is especially challenged by numbers submit taxes every year with nearly no snags? (OK, I’ll come clean about the snags later on. They were minor!)
Here are my tax tips, with minimal math meltdowns.
Really, really try to be disciplined about spending and tracking…the less stuff to count and find later, the better.
Store all business spending and earning in as few places as possible.
Always sock away receipts, and write a note on it if it looks ambiguous to help you remember later what it was for.
It may be too late for the current year…. In that case, start now, for next year!
I collect all paper receipts and tax-related statements in a shoebox and do my best to limit every business-related purchase to just one credit card. I use a business credit account, which offers a year-end summary in categories. In January, I print this summary as a starting point for grouping expenses. I pay on this credit account monthly from a business checking account, where I deposit all earnings.
Make sure you cover the important deductible spending categories for artists.
- transportation (car repairs, maintenance, gas, tolls, fees)
- art/office supplies
- utilities for office space
- repairs and real estate (if you own your workspace)
- computer software/hardware/network
- licenses and legal services
- research materials
- art supplies
- entertainment with clients
- and kid care expenses, if you have dependents
The more you itemize, the more you’ll chip away at your self-employment taxes, which are unavoidable.
If your freelance life has a lot of hiccups, like mine, you ended up using different methods to pay for stuff (boo, breaking rule #1).
I rely on my paper receipts to solve this extra headache.
Collect all the receipts into piles based on deductible category, and then subgroups by pay method (card type, check or cash). Clip deductible groups and subgroups into packets with a “total” amount for each marked on top. I use an adding machine (instructions here) to make it visual, yet automated.
Then compare packets to printed bank statements, highlighting what needs to be added, and crossing off what’s been accounted for. In this step, I always find missed spending, so I’ll end up re-totaling categories more than once. We’re almost done with math!
After organizing and adding everything to the best of my ability, a simple spreadsheet puts it all on one page.
Include deductible categories at the top and left, such as oil changes, repairs, daycare, cash, software, etc. Plug in the numbers from the paper piles, bank statements and your notes. The file creates totals at the bottom for you!
I also include earnings on a separate table below, with the sources of income, and a total. Charitable donations are logged as well. I copy and update the same spreadsheet each year; this allows me to compare one year to the previous and re-use categories, making future taxes easier and faster.
Some especially helpful tax tips for the math-challenged:
- Make notes while working, so you don’t forget anything.
- Careful not to “double count” deductions. I break the whole tax process into small, methodical, documented tasks for as many weeks as possible, since it is so hard to get motivated.
- I’ve been told if your income or deductions don’t fluctuate dramatically from year to year, it decreases the possibility of a red flag.
- If you are very worried, lose the stress and find a good accountant. When this happened to me, I used the accountant’s numbers for the next year’s base documents.
- I usually use online tax software to submit—it’s cheap and easy. (Make sure to include a Schedule C for business expenses). You’ll need to familiarize yourself with the interface, for finding and verifying your entries, so make some time to learn it.
- Last but not least, always report 1099s delivered to you! My own snags occurred due to late-arriving 1099 forms, which I had forgotten to prepare for…. Look out for them: They come from the clients that you’ve worked with who are reporting your earnings to the IRS.
If I can do this, I know you can too. Make it visual, go in stages, make notes, and take your time. Good luck!
Photo by Mariah Fox.