In order to be Bulletproof you’ll need to know a bit about the business.
******None of this is to be construed as business or tax advice in any way and is based solely upon my own research and experience.
If you’re a freelancer and you don’t have regular employees then you should be only somewhat intimidated by taxes and paperwork.
“But I just wanna work. I hate that I have to spend my time keeping track of bullcrap!”
I hear you, but it’s your responsibility to keep track of a few things. If you do it right then it can take up very little of your time.
There are three main ways you’ll spend your time as a freelancer:
Tracking income and spending
Now, to track your income and spending you’ll need to be able to invoice your employers/customers/clients. There are a thousand different professional ways to do this. Just make sure your invoice looks professional and that they each have different invoice numbers (usually they go sequentially). Track who you sent your invoices to and for how much and BAM! you can track who owes you what!
Taxes. The IRS IS going to fist you once a year every year and there’s nothing you alone can do about it. If you don’t do what they want then your life will end up like THIS.
Look at IRS Form Schedule C “Profit and Loss from Business” you’ll include with your taxes at the end of the year:
As you can see the IRS wants to know how much income you made so they know how many fingers to fist you with. The expenses section lets them know how deep to go.
The important thing to look at are the 20 or so EXPENSES CATEGORIES. It is important that you accurately report your expenses on your taxes every year. This will help keep the IRS fist from going any further than it needs to because these are DEDUCTIONS – meaning that the IRS considers this the ‘cost of doing business’ and thus you are NOT taxed on these expenditures.
What’s nice is that when you start out you’ll probably have to spend some money on equipment so that’ll bring your tax burden down.
So you have options here. You can simply throw all of your receipts into a shoebox and then sort everything out at the end of the year (you’ll kick yourself in the balls and the teeth for doing this).
A step up from that is making a folder labeled with each category you use and throw receipts into them (you’ll only want to kick yourself in the teeth for doing this).
Preferably, you’ll track what amount of spending goes into which category as you go along (this makes you want to kick back and drink a mai tai).
There are a lot of ways to do this:
Good ol’ pen and ledger
Computer bookkeeping software
Mobile Apps (check this LINK)
Until you have a handle on the situation keep it as simple as possible. Remember, there are only 20 or so categories and you’ll probably only use half of those.
At then end of the year add everything up and report it on your taxes. No biggie, right? You got this!
You may be required to pay estimated quarterly taxes if your taxes for the year will equal $1,000 or more. Click HERE for more information on that.
This is the most basic way to explain it to you. There is a LOT not explained here but it will at least give you some direction to point your research. As always, keep what you can use and leave the rest!