OK, if you are like me, you just filed your 2014 freelance writing business taxes. Bummer, huh?
As it turns out, small business owners, especially sole proprietors, take a hefty hit on taxes. The main culprit, of course, are the so-called self-employment taxes.
It’s kind of strange name, because it isn’t really accurate. What self-employment tax is, is the taxes that your employer would normally pay for you, if you had a regular salaried position. Specifically, when you have a “regular” job, you pay 7.5% of your pay into Social Security, and your employer pays 7.5% into Social Security and Medicare on your behalf. But, when you own your own business, you are both the employee, and the employer, so you pay the whole 15%. (Technically, it’s 15.3%) That extra 7.5%, plus the employer amounts for Medicare, are what makes up your self-employment tax.
You do get to deduct the employer part of your self-employment taxes, so don’t forget that if you are doing them by hand. If you are using TurboTax or an accountant, they’ll get that for you.
The end result of that situation, is that business deductions save you more on your taxes than personal deductions, because business deductions reduce the amount of that self-employment tax you have to pay, while other deductions, such as charitable donations don’t do anything to lower the amount of income subject to that extra hit you take from the employer part of the self-employment taxes.
So, for your 2015 freelance writer taxes, here is how to start now, to get more small business deductions.
2015 Freelance Writer Deductions System
If you are like a lot of people, you have a single file folder or box for tax receipts, that is things that you pay for that are going to be tax deductible. The problem with this is, that as a small business owner filing a Schedule C, it is better for your tax situation to have business deductions than personal tax deductions (at least until your business has a loss, and then it doesn’t matter). At the end of the year, you might not remember if that box of pencils was for your business, or for your kids. You need to be sure, because every time it becomes a personal deduction, it costs your 7.5%.
Get two file folders or two receipt boxes. Make one for business, and one for everything else. That way, you won’t put any business deductions in the wrong spot.
Next up, you need to keep better records. Mileage driven for business is deductible. Parking for business is deductible. If you don’t drive a lot, remembering to keep track of your mileage can be a pain. So much so, that you might not bother deducting your mileage at all. But, even a few trips for business can save you $50 or more on your taxes. Remember business mileage is a business deduction. Download an app to your smart phone to help you keep track. That way, you don’t have to remember to write it down in some notebook that you may or may not remember.
Finally, get a business credit card. You probably know that as a sole proprietor, most banks won’t give you a credit card without your personal guarantee. That means that if your business goes bankrupt, you, personally, still have to pay. While that may be an issue for some things, that doesn’t matter for your expense credit card. The important thing here is to have a separate card for your business transactions so you have a nice record you can use to create your business deductions from.
Think about all of those times you go some place like Target or Walmart, or Best Buy to buy stuff for your business. It isn’t always easy to keep track of which trips were business or personal. Did you buy paper and toner, or did you buy the new Taylor Swift CD (for your kid, of course)? With a business card, you always know which transactions were business and you can deduct them.
Put these measures in place today, before your 2015 freelance business taxes become just as big of pain in the butt as your 2014 freelance business taxes were.