If you’re using Freckle, you already have it easy accounting for your time and productivity and invoices… but what about your taxes?
The tax year is wrapping up, which means it’s time to sit down over some contraband wine coolers and talk about Getting Our Tax #@(! Together for 2011.
But first things first: I, too, am a co-ed in the school of small business tax #@(!. I have a method that works best for me, which is what I’m about to share with you. But please remember, this is a case of collegial sharing of what works for me! Standard disclaimer: I Am Not a Tax Lawyer.
(Oh, and some of this advice only applies to Americans or people who do business (legally) in the United States!)
Without further ado, let’s Get Our Tax #@(! Together for 2011! I’ve broken down my first round of advice into four steps:
- Are you having an identity crisis?
- Say “yes” to bookkeeping without rats’ nests
- Get your tax advice in meatspace or on the intarwebs
- Speaking of estimated taxes…
Let’s get crackin’.
Step 1: Are you having an identity crisis?
Did you file the paperwork last year with the IRS to receive your EIN? Do you have to? Do you know what an EIN is?
If you do need it, and you know it, you’ve probably already secured your Employer Identification Number (EIN). If you have no idea what I’m talking about, now’s the time to find out:
- If you’re a sole proprietor, you don’t need an EIN. Your EIN is, in effect, your SSN.
- In other situations, though, like an LLC or bonafide corporation, you do need an EIN. That’s because your business is considered a separate tax entity from your own bad self.
Step 2: Say “yes” to bookkeeping without rats’ nests
Bookkeeping: every freelancer’s Kryptonite.
Laws vary from country to country, but in the good ol’ US of A, you have a choice between paper receipts and digital copies. Either way, you definitely need a method of making sure every business-related expense is captured, collated, and collected for later retrieval.
And no, towering piles where “you know where everything is” don’t count. Sorry. You know you’ll just have to leaf through them come tax season, wasting hours better served actually making money (or reading The Oatmeal).
Good news: there are easier, less stressful, cleaner ways.
Got lots of paper? Try apps like as Shoeboxed and Neat — they’ll help you capture your paperwork with smart phones & scanners, then store digital representations of your paperwork in a virtual storage facility.
Other web apps like Xero and Indinero will work with your bank and credit card accounts directly to grab your whole statements in one go, and even automatically categorize them with shiny reports for your pleasure.
A small business credit or debit card is also a fine way to track expenses, if you use that card exclusively for business-related purchases. (And don’t forget cash expenses.) Be sure to download your digital statements regularly for backup, if your bank offers them.
Bottom line: There’s no reason to have crows nesting in your filing cabinet. (Or, as it may be, filing pile. Yeah, I know how it is.) Set up a system today and reap the rewards of relaxation this time next year.
Step 3: Get your tax advice in meatspace or on the intarwebs
One is definitely the loneliest number when it comes to filing your taxes. As a freelancer or small biz owner, your taxes are pretty complicated. You should call in professional help. Even if that professional help is a tool. (Software tool, that is.)
The first step towards practicing safe tax is to choose between a real live human Certified Public Accountant (CPA) or an online accounting & tax prep service.
Should you decide on a CPA, finding one through word of mouth is your best bet. Trust who your friends trust. When in doubt, call your local Small Business Administration office for recommendations.
Tax software (reviews) for the business owner abounds and can set you back up to a few hundred bucks a year, depending on how fancy you get. (But think of the hours it’ll save you freakin’ out.)
Online accounting services are great for tracking incoming and outgoing funds, and some will even file your taxes for you. If you’re already using QuickBooks or Quicken, you can switch to an online version. Other great, modern alternatives are Xero and Indinero. A new tool called Outright even helps you with your estimated taxes.
Bottomline: If you are at all shaky about how to handle your taxes, I recommend you use a CPA. Not only will you have someone to outsource your worries to, their numbers wizardry can help you save money with deductions and tricks you may have overlooked.
Step 4: Speaking of estimated taxes…
I’ll be writing about estimated taxes in detail in a later episode of Get Your Tax #@(! Together for 2011 but hey, we’re already here, so here’s the scoop in short:
If you’re even slightly successful, and you’ve been freelancing for at least a year, get your estimated taxes on your radar. Estimated taxes are just what you’d think: tax payments based on what you estimate you’ll owe for the year, broken down in 4 payments per year.
The goal, of course, is that the IRS gets money on the regular — and you don’t end up owing a giant lump sum when tax time rolls around.
The rules are fairly simple on the face of it: If you owed taxes in 2009 (as a self-employed person) of $1,000 or more, then you ought to have sent the IRS 4 quarterly checks in 2010.
Are you thinking, “OH, #)(!”? Don’t. It’s really okay. This is not the end of the world, and the IRS penalties are pretty minor.
Here’s how you handle missed estimated tax payments, and prepare for the future:
- Be sure to tell your CPA that you didn’t know you had to do estimated taxes, and they’ll help you out. (They may even be able to file paperwork so you don’t pay any penalties.)
- And ask them how to set yourself up to pay estimated taxes properly for 2011.
Your action items!
Phew, that was a lot to get through. Well done. Consider this your to-do list:
- Figure out if you need an EIN
- File for your EIN, if necessary
- Turn your misshapen piles of paper receipts into digital scans, and/or…
- Sign up & set up an online bookkeeping tool
- Set yourself up with desktop or web-based tax accounting tools
- Find yourself a CPA and book an appointment
- Figure out if you should be paying estimated taxes
- Set yourself up with a system you can use to calculate & pay your estimated taxes for 2011, if necessary
- Kick back and relax!
And, if you haven’t tried Freckle yet, give it a whirl for 30 days for free. It helps you do a lot more than just track time in and time out. Freckle is built from the ground up to help freelancers earn more, charge what they’re worth, and generally have more productive, enjoyable businesses.
Sarah Snyder Is a San Antonio-based freelance writer. She used a Certified Public Accountant her first year and now uses a free online bookkeeping service. She’ll probably go to a CPA again this year because he’s so damn cool. She uses a business debit card and online receipts/invoices to track her expenses, and brushes her teeth at least twice a day.