Freelance Knight

Taxes – Keep Good Records

Taxes – Keep Good Records

Taxes – Keep Good Records

It is tax season here in the United States, which means I am compiling paperwork on the freelance work I did in the previous year for my tax preparer. I was blessed to have a mentor who gave me some pointers early on regarding the business side of my freelancing. In case any of you are early in your careers as freelancers, I thought I would share the pointers I received and have followed. These suggestions are useful no matter what your country of residence is and what government you pay taxes to. This may not be the most exciting topic to discuss, but it is a necessity. Freelancing is a business that we do, thus records must be kept, and taxes must be paid.

Here are five pointers I was given that have really helped me stay organized on the business side of my freelancing.

Example Invoice

Example Freelance Invoice

  • Separate Bank Account – Having a separate bank account allows for cleaner records, especially if you have a full-time job along with your freelancing. This keeps all of your financial transactions for your freelance work in one location, thus the bank records will assist in your tax preparation. This also is a security feature if you will be accepting electronic bank transfers or Paypal payments for your freelance work. If something were to go wrong with that transaction, only your freelance income will be impacted, not your normal checking and savings. Once a transaction is completed, you can transfer the money from your freelance specific bank account to your normal bank accounts.
  • Invoice All Work – Some publishers will utilize their own invoices for freelance work done with them. Others will not, so design your own Invoice and utilize it for those projects. It can be a simple document that lists your contact information, invoice number, invoice date, work completed, expected compensation and payment method. Retain copies of these Invoices.
  • Keep A Spreadsheet – Keep a running spreadsheet of all the freelance work you do. This will help you track who you are working for, deadlines, invoice dates, and if you have been paid. At the end of the year then, this spreadsheet will be invaluable as you work on your taxes. The spreadsheet also has other benefits. It helps you track your projects, gives you a snapshot of how much work you have done in the past year, helps you visualize your work flow, and keeps your communications with publishers current as to what is completed and what work has been paid for.
  • Retain All Emails – Most accountants/tax preparers will tell you to keep five or ten years of financial records. With so much of our freelance work done online and with huge email quotas available on Gmail/Outlook Mail, retaining records should not be difficult. I also suggest using a cloud based backup solution for your files on your laptop/computer.
  • Seriously Contemplate A Tax Preparer – A couple years back, my wife and I started using a tax preparer when our taxes become more complicated. Soon after, I started doing freelance work, so I discussed it with my tax preparer. I was unaware of all the complexities involved with this extra self-employed income. Dependent upon how much I earned in a year would determine how complex my tax preparation would be. I have found these past two years that having a tax preparer has made tax season much less stressful.  When I first started this process, my tax preparer recommended this site (http://www.freelancetaxation.com/) so I would be understand what was involved with taxes in the U.S. on freelance work.

What insights and experiences do you have for keeping good freelancing records? For those of you who live outside the United States, do you have other points you would recommend?

Note: If you would like examples of the spreadsheet or invoices I utilize, feel free to contact me directly using this form, Facebook, or Twitter.

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5 thoughts on “Taxes – Keep Good Records

  1. Sandy

    Greetings and grinding teeth….aka tax time!
    One other suggestion: If you read and use an IRS publication (or anything on the IRS website) to justify doing anything tax wise…MAKE A COPY of the IRS material. The IRS is notorious for disallowing things with one hand, while the other has allowed it. (sigh!) Your only defense is a dated copy of their material as it existed at the time of your tax prep… Why dated? Because the IRS can and will update their materials and woe to you if the interpretation changed!

    1. T.R. Knight Post author

      Sandy – That is great advice to make copies/prints of any tax documents you reference. Be especially vigilant of keeping such copies if you work in various states/countries that might have competing tax laws.

  2. David Miller

    Ugh, I am horrible at records – I keep all expenses in Gmail in their own yearly folders but that’s as organized as it is. =(

    Since I’m an LLC, game income passes through as personal income and, thus, I use that as an excuse to be lazy with record keeping (perhaps sloppy is better than lazy, I have all receipts and their digital counterparts, but they aren’t in a spreadsheet yet for 2014).

    I don’t have the same complexities you do since I don’t do freelance, per se (an occasional web site or logo at most these days).

    But . . . 2014 will be interesting taxes with the Kickstarter. I have offset most of its small profit by buying game components in 2014 for 2015 games but . . .

    A spreadsheet is what I really need to do (and plan to in the next few weeks) and a tax preparer is probably an excellent idea. Thanks for the kick in the seat! =)

    1. T.R. Knight Post author

      David – Your honesty is a reflection of us all. Staying organized when we prefer being creative is always a challenge. This will be my first year with significant freelance income so we shall see how my taxes go. I am currently working on them with my tax preparer and will let you know. I hope your Kickstarter related taxes go smoothly as well.

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