The first year in business as a freelancer can be daunting, especially when you’re used to your previous employer taking care of many of your tax obligations. Now, you’re in charge, and you have to manage everything from income tax to retirement fund contributions and everything in between.
If the end of the financial year is looming and you’re unsure what you’re supposed to do, you’re in the right place. Here are some top tips for handling your first tax return as a freelancer.
Rely on the Professionals
Freelancers wear many hats and juggle every aspect of their business. You’re not only the business owner but also the salesperson, the marketer, and even the cleaner.
However, you don’t have to be the accountant. When that first tax year rolls around, consider searching ‘best tax accountant near me’ and finding a tax agent or accountant to guide you through the process. With their assistance and helpful advice, you should feel more confident organizing your books throughout the year and tackling your tax returns in the years to come.
Create a Separate Bank Account
Many freelancers start their careers as employed professionals with side hustles. Before long, their side job becomes their main gig. The slow transition into self-employment can sometimes mean you don’t worry about opening a separate bank account.
However, you might realize how crucial it can be when the time comes to file your taxes. Trying to separate personal and professional income and outgoings can be time-consuming, and there’s room for the IRD to question whether some payments are business-related or personal. Consider dividing your banking services into personal and professional before tax season arrives.
Keep All Receipts
Whether you’re utilizing the services of a tax accountant or filing your taxes yourself, you’ll soon realize the importance of keeping receipts. Receipts provide proof of all freelance-related expenses made throughout the financial year, such as phone bills, utilities, internet usage, home office equipment, and even vehicle expenses.
It also pays to keep your receipts for at least three years from the date you filed your return. If you filed a claim for a loss or bad debt deductions, you’d need to keep receipts for up to seven years.
Keep Money Aside for Tax
It’s easy to assume that all income you receive from your paying customers is yours to keep, but the government says otherwise. As a self-employed freelancer, you’ll need to pay at least 15.3% in self-employment tax, which covers Medicare and social security. You might also be paying quarterly taxes rather than yearly ones. However, everyone’s situation is different, so ask your accountant for clarification if required.
Use Accounting Software
You might think that only accountants and tax agents handling your tax returns need to worry about accounting software, but it’s a helpful tool for business owners. With such software, you can keep track of your income, outgoings, and all business-related information.
You can also use accounting software to produce reports, create invoices for clients, and ensure they pay on time. Your chosen accountant can then file your tax return using this information.
Navigating your first year as a freelancer can be exciting and daunting at the same time. You might dread tax season, knowing you have to do everything yourself. However, if you rely on the experts and keep detailed records, you should have no trouble filing your first tax return.