Like many of you fellow freelance writers and other self-employed folks, I’ll be doing my taxes soon. Since productivity is an important focus here, I’ll share how I do my taxes. You can chime in below with comments and we can all learn from each other.
(Note: see this recent post for other important advice: The 8 Top Ways to Legally Lower Your 2013 Freelance Writer Tax Bill.)
Here are my tools and methods…
I Use TurboTax
I use the most comprehensive version of Turbotax because my income derives primarily from my freelance writing and information product sales, and also from various investments. I also do some buying and selling of stocks and mutual funds, and this version can go to major financial institutions and automatically download financial data and enter it into the appropriate forms.
Turbotax also makes doing my Oregon state taxes a breeze, and the e-file is a no-brainer.
Note that there are less expensive versions of Turbotax, and there are also other forms of tax-preparation software, some of them free if your income falls below a certain level.
I Take Advantage of Paypal Data
I use Paypal for all sales of my Find Your Freelance Writing Niches course and my e-book Writing College Textbook Supplements, 2e. I also use Paypal for many of the goods and services I use for my business. Paypal has summaries online of all my income and all my purchases. I download the data and pop the proper amounts into my Schedule C.
I Take Advantage of Amazon.com Data
I purchase most books and many other products from Amazon, and many are deductible. (I take advantage of free 2-day shipping with Amazon Prime.) I can easily see which items I’ve purchased, and again, it’s a snap to get the right figures for Schedule C.
I Take Advantage of Annual Credit Card Summaries
I use a business-account credit card for all purchases. My company gives me annual itemized summary of every charge grouped by category, so I’m all set to figure out which amounts are tax deductions.
I Use 3 Envelopes…
Envelope 1 has all receipts that are likely tax deductions. If I don’t have a receipt, I write the pertinent info on a 3×5 card.
Envelope 2 has all my tax-related forms, including check stubs and tax forms like estimated-tax forms and 1099 forms that I give to independent contractors who work for me. I also write info on the outside of the envelope, including how much I pay in estimated tax each quarter and any money I applied from the previous year to this year’s taxes, and also money I’ve contributed for the tax year to retirement accounts.
Envelope 3 has all receipts that are not tax deductions that I still want to keep.
I Maximize my IRA Contributions
I put in the max amount to my traditional IRA at the beginning of each tax year, typically in early January. I caught a bit of break (so far!) when I put most of my 2014 contribution in a couple of weeks ago at the bottom of the recent market dip.
I put money into my SEP-IRA a couple of times a year, when I have a good idea of my income so far. I’m careful to put in substantially less than I’ll likely be entitled to, because there are penalties for adding too much in one year. Once my Schedule C is final I add the last amount to get to my max.
What I Don’t Do
I don’t use Quicken or any other accounting software. Why?
First, my methods work for me and feel efficient. It only takes me about an hour or so to use pen, paper, and calculator to fill out my Schedule C.
Second, I don’t want to pay for software or invest the time to learn how to use it. By the time I enter data into Quicken, or even an excel spreadsheet, I can write it on a piece of paper in the appropriate Schedule C category, and it only takes a few minutes to add up all the numbers on the calculator. (And for brain exercise, I double-check by doing the math in my head.)
Your Methods and Advice?
As a freelancer or businessperson, how do you do your taxes? What do you think is most efficient? Any suggestions for me to improve?