Reading the word taxes immediately causes deflective thoughts to take up residence in my brain: Why do some restaurants serve toast with pancakes? Maybe I should rewatch Reggie Watts improvise a song called The Princess and Monster. Hey, I wonder how much gunk has built up under my kitchen sink since the last time I scrubbed it?*
As freelancers though, we don’t really have the option to blast off on a merry mental rocketship at tax season. It is our responsibility to declare all earnings, accurately report our itemized deductions, and not freak out if we have no idea how to do either of those things on the eve of April 15 as we read blogs we find on Google while thinking, “Holy shiitake, I am so screwed.”
You’re not screwed.
Aside: Everything that follows is what I’ve learned from trials that make Judge Judy easy to sit through, errors that cost me the price of a vintage souped up VW bug, my mom’s patience, and my tax guy. I can’t claim (ha) to know the dips and dots of Taxlandia; all I can offer is what I wish I had known about doing my taxes as a freelance writer seven years ago.
So come back down to Earth with me — it’s nice here, some diners serve grains with grains! — and let’s get cracking on how you can minimize the damage done by working for yourself.
MOST LIKELY, NOT ALL OF YOUR INCOME OVER THE YEAR FELL INTO YOUR POCKET TAXED.
Which means, when you go to report your income, you are going to owe a really crazy-high number — unless you itemize your taxes.
YOU (YES, YOU!) ARE NOW ONE OF THOSE PEOPLE WHO HAS DEDUCTIONS.
So, the bad news is that itemized taxes are hella more complicated than what you knew before. The good news is that deductions will save your bacon (and save your ability to buy bacon).
Pro tip: Itemized deductions, or write-offs, are costs related to producing your income. ie: a cup of coffee with a potential client where you discuss services could be a write-off.
ENLIST THE HELP OF A PROFESSIONAL.
The truth is, it can be really tricky to catch all the bits and bobs floating about in your expenditures – and one misstep plus bad-luck fairy dust can lead the IRS to your door (yikes!). A tax pro might seem like one more hard cost to swallow, but I can’t sing the praises of these good eggs enough. The first time I went to my tax man, I had calculated that I owed $6000. He got me down to $600 (totally worth the price of admission, and the bouquet of tulips I sent his office). Read on to see a small sampling of the helpful insights tax pros have to offer.
RECEIPTS BELONG IN A SACRED PLACE LIKE A SHOEBOX, NOT IN THE RECYCLING BIN.
Here’s the thing: in order to write-off business expenses, you have to have proof that you had expenses. Unfortunately, the ol’ “make up some numbers” ditty only works in a riff-off** — in the United States of Taxlandia, you need to be able to show and tell about each of your purchases in case the IRS audits you. I collect customer receipts and write on the top of each one how the cost is related to the business of being a writer. It’s not tedious if you always have a pen handy.
Pro Tip: Get a business-expense credit card, where only write-off friendly purchases will be made. Seriously, this is a game changer as it means you can review many of your expenses in one place.
YOU AREN’T SCREWED IF YOU DIDN’T KEEP TRACK OF PURCHASES LAST YEAR.
You can always reconstruct part of your purchases based on credit and debit spending. Looking through your statements for the last year can jog your memory. Plus, write-offs aren’t just about coffee meetings and pencil sharpeners...
YOU CAN WRITE OFF A LOT MORE THAN YOU ARE CURRENTLY IMAGINING.
Remember, write-offs are about costs related to producing income. So, what do you pay for that enables you to do your job? For example: I pay rent on an apartment that is home to my desk that doubles as my office — thus, I write off the cost of the square footage of my home office based on my rent. My cell-plan is also vital to my work — being able to respond to client emails immediately is part of what keeps my clients happy and secures me jobs. So I am able to write off my cell phone bill. Other costs that you also might be able to write off:
- Netflix subscriptions, the book Attached by Dr. Amir Levine and Rachel Heller, and any other media that relates to your field of work in terms of professional development or research
- A blazer, yoga pants, and any clothing required to produce an income (think about that time you had that fancy-pants meeting in a corporate office and found yourself at H&M with your mom in a tizzy)
- Medical marijuana
- Utilities (from water and heat to your internet bill)
- Printer toner, Moleskin notebooks, earbuds
- Your brand shiny new iPhone 6
Pro tip: You can also report (and thus write-off) losses — including “My cell phone was stolen out of my hand” losses, and “I have a client who never paid the remaining $1500 she owed me.” So long as you have a paper trail, you have a case.
Anything you spend (or lose) money on that helps you do your job is on the table (though I recommend you talk to a professional before setting anything in Formica or the stone of your choosing).
THERE ARE ENTIRE SECTIONS ON YOUR TAX FORM FOR AUTOMOBILE AND MEDICAL EXPENSES.
Keeping diligent track of your gas consumption and mileage in real time throughout the year will make reporting costs a lot easier. I have a notebook in my car and every time I fill up or have maintenance done I make note of the date, my current mileage, and the cost — because I use my car for work, I can write this off.
On the medical side, premiums aren’t the only cost you’ve likely incurred. Doctor visits, second opinions, subscriptions, that time you tried acupuncture, and all those naturopath subscribed supplements count, too. (The only time I’ve been excited to have a chronic health issue is at tax time.)
DONATION FORMS ALSO BELONG IN YOUR SPECIAL SHOEBOX.
No more drop and dashing at the library. Any time you donate gently used clothes, old electronics, that funky mug from Niagara Falls or your collection of The West Wing (wait! I’ll take that!) to an organization, stick around for a receipt. Oh, and when you donate money to a friend’s Kickstarter campaign or your local NPR affiliate? Those are tax-deductible, too, provided you have the paperwork.
Pro tip: Your items do not have the same value as they did new. This handy guide from The Goodwill can help you suss out how much your stuff is worth.
So here’s my question for you all: I know I’m woefully behind on apps or technology that might make this process even less laborious. What am I missing out on?
* Only one other financial phrase triggers such drastic diversion tactics: money market account.
** Which, incidentally, only works in confines of Pitch Perfect and PP2. Who knew?
This article originally appeared on March 29 at Copy Muse Collective.