Procrastinator’s Guide to Freelance Business Tax
Being your own boss puts a lot of demands on your time, so it’s easy to procrastinate on your business taxes. With the right tools, you can set yourself up to avoid penalties and keep taxes from falling to the bottom of your to-do list.
There is something special about the first time you turn a profit as an entrepreneur. If you’re a hair stylist, you might frame the first dollar earned as a tip. As an online seller, you might keep a photo of the hat that sold out in two days, and if you’re a freelancer, you might mark the day you signed your first client as an anniversary.
With those business milestones, however, come business taxes. While getting caught up in all the other aspects of managing the day-to-day is easy, it’s important not to let taxes fall to the wayside. But it’s easy to procrastinate. Taxes can be daunting. April 15th only comes once a year, and there are so many other, more pressing deadlines you’re dealing with as your try to run your business or manage the demands of clients.
The trouble is that business taxes aren’t a once-a-year event, and falling behind can create a big mess and a lot of headaches. Fortunately, even master procrastinators can take control with just a little effort and set themselves up to successfully manage their business taxes throughout the year.
Automate your accounting
When your customer pays you for the delicious cupcakes they ordered, or your client pays the invoice for the shelving you built in their office, it’s easy to think the transaction ends there — but it’s not that simple. Keeping accurate records about each transaction is vital to help you understand the health of your business, can help you track discrepancies, and bolster or justify your claims for business deductions.
With platforms that automate the process of tracking the money coming in and out of your business, you don’t have to spend a lot of time pouring over ledgers. It’s one less task to procrastinate because it’s already off your plate. Depending on the software you choose, you can even automate reports, manage transactions, and track your inventory.
- QuickBooks: With Quickbooks, you can automatically monitor income and accept customer payments through the platform. You can also create invoices and compile custom estimates for clients, which can also help you keep thorough records of your transactions.
- Xero: Great for micro-businesses, Xero specializes in simple accounting software. You can use their mobile app, track inventory, and accept online payments from customers. This is a good solution for business owners who just need a basic accounting platform.
- NeatBooks: Neatbooks is a great, user-friendly option if you just need a simple accounts-receivable platform. This platform also allows you to store source documents, which can help you track down the original if there’s a discrepancy.
Easily remember IRS deadlines
Paying taxes is inevitable, but that doesn’t mean we don’t try to avoid doing so. It’s easy to put off making payments to the IRS, but keeping track of deadlines– meeting them– can provide ultimately mean less stress. Automated options to help you keep track of your tax deadlines, which can save you money, as failing to pay can make you subject to penalties and interest on missed payments.
If you receive a 1099-NEC, you’ll also want to keep track of that because the client who sent you that form will be sending a copy of that form to the IRS. For accuracy, you’ll want to be able to reference that form when you file your taxes.
If taxes aren’t withheld from your income through a W2, you must pay estimated taxes on any income you receive throughout the year. These payments are required by law, and typically they are made every quarter:
- January 1 to March 31 – April 15
- April 1 to May 31 – June 15
- June 1 to August 31 - September 15
- September 1 to December 31 – January 15 of the following year
Payments are due the next business day if these due dates fall on a Saturday, Sunday, or a legal holiday. Small business owners need to estimate the income they expect to earn on a routine basis because the amount may change throughout the year and the payment may increase or decrease.
Don’t stall out at the finish line
Finally, we get to the classic step, filing your annual return. For a procrastinator, the yearly deadline to file taxes may seem like a distant signpost until it’s just days away. Filing early can help you build momentum to stay on top of your tax obligations into the next year by giving you a better footing to budget for your taxes and meet other deadlines. Giving yourself a solid starting place can cut your work significantly, making you less likely to procrastinate.
Fortunately, filing your taxes doesn’t have to be a difficult task. If you’re a freelancer or running your business as a sole proprietorship or single-member LLC, like most businesses in the United States, then you’ll probably file a Schedule C. There are some exceptions, as farmers generally file out Schedule F, and if you earn money from rental income or royalties, you might need to file with Schedule E.
Filing your taxes may also be easier if you’ve already acquired an EIN, but you’ll also need some other information before you sit down to file:
- business income statement
- balance sheet for the tax year
- receipts for any business expenses
- inventory records
- mileage and other vehicle records if used for business
Schedule C is simple, only two pages long, and will be incorporated into your 1040 form. The deadline is the same as your return, typically April 15th, but it may fluctuate to accommodate holidays or weekends. Software and applications like ComplYant can help you keep track of these deadlines and even send reminders.
Don’t go it alone– there are tools to help
Whether you need software to track your cash flow, a digital filing cabinet to keep track of receipts and invoices, or reminders that can chime in when a tax deadline is looming, some platforms can help keep your business running smoothly.
Freelancing is tough, but it’s rewarding. That’s why you started the gig anyway, right? Getting yourself the right tools can allow you to focus on the aspects of your job that you love, and part of being your own boss is empowering yourself to do your job well.
So take a bit of time to set some tools in place that can monitor your income, track your expenses and receivables, and remind you of upcoming tax deadlines. It’ll help you banish procrastination, and you’ll have your business tax under control.