If you are a freelancer who works on writing, editing, design, or photography projects throughout the year, then you may spend some time completing your taxes in April. While many freelancers take a similar approach to accounting, bookkeeping, and paying taxes, some individuals treat their freelancing careers a bit differently and consider themselves small business owners. With this in mind, it may be a good idea to invest in an accounting service. Many services are online and there are several ways that the services can save you money in the long run.
Estimated Tax Information
Even if you go for the simplest online accounting service, the software or accounting firm will keep track of your earnings. Based on the tax rate of just over 15%, the service will calculate your estimated taxes. These taxes will include social security and Medicare taxes. Also, it will help to determine your quarterly payments and assist you in meeting your payment deadlines with the determine estimated tax amount.
Estimated taxes can help you to avoid penalties and large tax bills. If you do not save enough of your income, then it can also assist with the avoidance of a tax payment plan. While these plans do help to break out payments over the course of one or several years, you will need to pay penalties. This money is essentially wasted and you also will find yourself at least one year behind on taxes. Unexpected expenses can easily leave you in debt to the IRS over a long period of time and constantly paying penalties.
If you are not good about paying your estimated taxes, then some types of accounting services will automatically deduct estimated taxes from your self-employment income in the same way that an employer would. This is often ideal if you find yourself in a bind each tax season.
While self employed individuals have the option of deducting business expenses on their taxes, many freelancers do not deduct these things. Some people simply do not keep track of their deductions throughout the year, while others do not think that deductions are worth it. If you do not have a lot of business expenses, then the deductions may be minimal. However, it can be difficult to estimate if you do not track your expenses.
Online accounting services will help you track your expenses over the course of a year, so you can make your deductions. Tracking is completed for things like mileage and gas for business meetings. Lunch during business outings or a new computer to complete your work. Supplies that include printers, paper, and ink can often be deducted as well. In some cases, a portion of your utilities can be deducted on your income taxes. You will need to meet certain criteria for this to be the case, but the services can help to determine qualification as well as tracking.