The key benefit of freelancing is most evident in its name: it offers more freedom and flexibility. Yet it also carries with it certain burdens like managing your own hours, reporting, and – perhaps the most anxiety-producing thing of all – taxes. Being proactive about taxes early on will help avoid the panicked attempt to sort a year's worth of finances right before the filing deadline in April. Here are several ways you can minimize risk and reduce errors in finances as a freelancer when you work for yourself or on the road as a digital nomad.
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Learnvest describes the deductions you don't want to miss as a freelancer through business expenses. From business meals to paying rent on your office space to repairs for freelancer equipment (which can include your laptop, if you use it for work), keeping track of eligible business expenses will help you know what deductions you can make. Hiring a bookkeeper for a reasonable price can help you keep an active and accurate record.
Freelancers sometimes get lost in the sea of invoices and payments. Getting paid job by job, and having payments arrive sometimes long after a job is finished, can make it difficult to follow your income. Using a spreadsheet, accountant, or accounting software to remain up-to-date on a monthly or quarterly basis can give you a periodic check-in as to where your money stands. This will help avoid unpleasant surprises at the year's end.
The tax code, especially for freelancers, can be baffling. Unfortunately, the burden of deciphering the code as it applies to your freelance business falls on you, and can sometimes lead you into puzzling areas that personal research can't solve.
It helps to have an at-the-ready tax professional at this point to answer specific questions and ensure you act correctly. Even if you're fairly confident about your process of assessing your tax liability, it can help to have reassurance and confirmation. An accountant can also help you if you happened to be audited by the IRS.
Even if you're meticulously keeping track of your business operations now, it helps to look into the future. This way, you won't be side-lined by unexpected costs and liabilities that could have more easily been prepared for. A financial planner can help give you a portrait of future business to provide a better idea of where your current operations are headed.
What other ways can freelancers stay on top of finances and taxes? Tell us in the comments below!
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