March 14, 2016 | | by

(or, Oh sh*t, I overlooked so many things this tax year that are costing me $$$!)

Like it did last year, tax time has rolled around once more, possibly catching you by surprise yet again (does this happen every year with you or just me?) – especially since corporate tax returns are due March 15th not April 15th*.  As a freelancer that has hopefully created a corporate entity of some sort (more on that later), you naturally remembered to log every trip to a prospect (whether it resulted in a project or not).  And you saved the receipts for all of those toner cartridges and the new software that you needed for that project 9 months ago knowing that you would want to deduct these costs later on.  You saved them right?  And since you use your cellphone as your business communications hub, you’re expensing your Verizon or AT&T bills right (though not the designer phone case that you bought)?

*Given different tax calendars for Subchapter S corporations and LLCs, if you’re unsure, check with your accountant for your actual filing deadline.

To LLC or not to LLC, that is the question

One big question that every freelancer needs to make is whether or not to incorporate, and if you do, do you create an LLC, an “S” corporation or some other legal structure. The structure matters and your decision should be made with an eye toward both tax efficiency and your business plans. Are you intending to grow into a much larger entity, or is your company just you and a periodic collaborator? This decision can definitely benefit from talking with a professional once you have clarified your plans.

Being a freelancer means you’re also a small business

Being a freelancer can be rewarding both personally and professionally, but not every freelancer with or without an LLC understands the full range of what they can or cannot expense and the need to effectively document all of their relevant expenses.  After all, you decided to be a freelancer to enjoy freedom and professional flexibility, not to turn yourself into an accountant. That said, you are effectively a small business and the cost of not understanding what you can or cannot do is high, and the cost of relying on an accountant for every little thing can add up as well. To help, we’ve summed up a few simple pointers to help you both this tax season and tax seasons to come:

  • Even small expenses add up, but they do need to be corroborated with documentation. When you pitch your services at a Starbucks, grab the receipt and write the name of the prospect and the project on the back of the receipt and pop that baby in a folder entitled “Tax Receipts”. You’ll need it later.
  • When you go to Staples to buy ink along with a variety of other unrelated items, highlight your relevant business expenses from the receipt.
  • Although you may work out of your house or in a shared workspace, the mileage that is incurred driving to meet with clients is a deductible expense but the mileage driving to your workplace is not. Track all of your relevant trips since at $.55/mile, this deduction can add up, especially if you have a few clients that are a bit of a ride from your home or office.
  • Those professional development conferences that keep you up to date in your discipline (hello HOW Design, MarketingProfs B2B, FutureM, Inbound), may be a little pricey at times, but they are deductible business expenses so make sure that you’re documenting them as well.
  • Your personal website development and hosting, Dropbox, Basecamp and Adobe subscription costs, as well as various URL’s or other similar costs, are all deductible expenses. Gather your receipts and take some of the sting out of all of those mounting costs.
  • Don’t forget that retirement plan contribution that you can make is pre-tax money – and for those of you that are over 50, you are permitted to put away even more in your retirement plan. If you haven’t set up a self-funded plan and intend to be a freelancer for some time, get to it.  You are missing out on an important part of your tax advantaged future.
  • If you do need an accountant to help, remember their fees are deductible expenses as well.
  • One final point, just because something is deductible doesn’t mean it’s a good idea to incur the expense. After all, you don’t want to spend a dollar to save 35 cents!

Tax planning is obviously not a huge concern for most freelancers, but handled correctly it can put some money in your pocket (actually keep some money in your pocket).  If your needs get a bit more complex, work with a proper accountant.  For those with more straight-forward requirements, good record keeping and an awareness of a few simple rules can save you some serious money.

  • Great advice for both the beginning and veteran freelancer. I’d love to have a better sense of what I can deduct and not.