Getting Organized to File Your Taxes as a Freelancer

Tips for Keeping Good Records of Expenses as an Independent Contractor

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The first step to a successful tax year, in preparation and savings, is getting and keeping organized financially; knowing where your money came from and when it came into your possession. Separate your freelance income from other types of income. It's also a good idea to keep all Form 1099-MISCs received in order to properly report income you’ve received. The IRS also gets a copy of any 1099s your clients send you.

The second step to getting organized is keeping track of your business-related expenses. Download a copy of the Schedule C from the IRS Web site (PDF). Look at all the categories of expenses. Try using the same categories shown on the Schedule C when categorizing your expenses. You can track your expenses by using envelopes to sort receipts, or by using a spreadsheet program, or by using a financial software program. The important thing to remember is you'll need to keep track of who you paid, the amount spent, when it was paid, and what the expense was for (that is, the category or type of expense).

Expenses for Freelance Writers

Examples of categories of expenses for freelance writers:

  • Advertising – this includes business cards and web-marketing
  • Insurance – for life, property & casualty, or business insurance. Do not include health insurance under this category.
  • Other interest – credit card or loan interest, such as interest paid on your computer loan.
  • Legal and professional services – such as fees your accountant will charge
  • Office expense – anything other than routine supplies.
  • Rent or lease other business property – rent paid on a writer's studio, for example
  • Repairs and maintenance – repairing your computer, for example
  • Supplies – routine office supplies like paper, toner, pens, pencils, notepads, etc.
  • Travel – the cost of traveling to a convention, meeting, or business trip
  • Meals and entertainment – the cost of business meals, but be careful not to go overboard here as this is a common target in an IRS audit.
  • Utilities –electricity, gas, telephone services.
  • Other expenses – such as Dues & Subscriptions, Web development, and professional education.

Health Insurance Expenses

If you are self-employed and you pay for your own health insurance, then you can deduct the full cost of your health insurance premiums on your Form 1040 as a personal deduction. In order to deduct your health insurance expenses, you must have a net profit from your business. If you have zero profit or a net loss, you can still deduct the health insurance premiums. But instead of going on the first page of Form 1040, they are deducted on Schedule A as part of the medical expense deduction. For record keeping purposes, be sure to make a separate category for health insurance expenses since that figure will be reporting elsewhere on your tax return.

Equipment

Keep track of computer equipment, software, furniture and other fixed assets in a separate expense category. When it comes time to work on depreciation expenses, you'll need to know when a particular piece of equipment was purchased as well as its cost and the type of equipment that was purchased.

Estimated Tax Payments

Be sure to keep track of estimated tax payments to federal and state governments. This might not show up clearly if you run an expense report just for the calendar year, as the final estimated payment is due in January.

More Tax Resources for Freelancers

How to Calculate Home Office Expenses and Depreciation
Reporting Your Net Profit and Paying Your Taxes as a Freelancer
Ways Freelancers Can Protect Business Losses