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What All Freelancers Must Know About Tax Season

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By Adria Saracino

To the new and veteran freelancer alike, tax season can be a time of dread. While there are many tax benefits to be taken advantage of, it can be difficult to navigate the maze of regulations surrounding each deduction–not to mention you have to make sure you’re sending all of the correct forms to the correct places.

But it doesn’t have to be a complete headache — not with the right resources. That’s why we’re recommending the seven tips below, which cover all of the essentials, as well as the documents available in this extensive tax resource center. With these two sources, you’ll find answers to all of your most burning freelancer tax questions — and a few you didn’t even know to ask.

1. Know What Taxes You’ll Need to Pay

If you’ve ever worked directly for an employer, you’re probably used to paying income, social security and Medicare taxes. As a freelancer, you’ll also need to pay a self-employment tax. This is because you are your own business, and therefore have to match your tax contributions in the same way your employer would have, for a total contribution of 15.3%. That’s 12.4% for social security and 2.9% for Medicare tax.

You’ll also have to pay an income tax, for which you can use your last year’s rates as a guide, or you can check the IRS site for income bracket cutoffs. Lastly, it’s important to check with your state revenue department and municipality to determine whether or not they are expecting taxes from you as well. For most freelancers, you will make the bulk of these payments in the form of estimated taxes at the end of every quarter — that’s the 15th of every January, April, June and September — using form 1040-ES.

2. File the Correct Forms

Every time a new client hires you as a contractor, they will have you fill out a W-9. That’s so that when tax season rolls around, they can send you a 1099, which will state the amount of money they’ve paid you. Note: You won’t receive this form for total income of less than $600.

You may be used to filing a 1040A or 1040-EZ form; as a freelancer, you’ll have to switch back to the original 1040 form, as you’ll be reporting self-employment income. To account for taxes related specifically to your business you will also need to file a Schedule C, though those with relatively simple businesses like writers or graphic designers will be fine filing a less complex Schedule C-EZ.

Lastly, you will need to calculate your self-employment tax on Schedule SE form.

Note: These forms and types of taxes paid will differ slightly for freelancers who have filed as a corporation — something all freelancers should consider for tax and liability purposes — but that is an article unto its own.

3. Take Advantage of Deductions

Now for the fun part! There are a number of juicy deductions available to freelancers. That said, it’s important to know the difference between what counts as a business lunch and what counts as a “ridiculous splurge that will anger the IRS.” And we can’t say it enough: keep your receipts.

  • Office Supplies: From the furniture in your office to that colorful new packet of Post-Its, office supplies are fully deductible. However, if you’re just starting out, you may want to brush up on the differences between current and capitalized expenses.
  • Advertising and Internet Expenses: Billboards, fliers, leaflets, online ad campaigns, and the internet connection itself. Add the expenses up, and deduct away.
  • Professional Services: Whether you’ve employed a bookkeeper to keep track of your finances or you’ve taken a continuing education course to further your career, the costs you paid are all deductible.
  • Insurance: If you have business insurance, it’s fully deductible. Health insurance is as well on form 1040 as an adjustment to income.
  • Home Office: You can deduct a percentage of your rent and utilities, based on the size of your home office.
  • Travel: If you travel to clients, track your mileage for a deduction at the 2012 rate of 55.5 cents per mile. Travel for business trips is also deductible, as are any meals and hotel rooms related to business travel.

This is just a sampling of the deductions available. You’ll find a more extensive guide here.

4. Be Wary of Audit Red Flags

One big caveat to all of these deductions: the IRS keeps its eye on freelancers for any kind of fudging, so you’ll want to make sure you’re not setting off alarm bells. A few common triggers include:

  • The Home Office Deduction: This is by far one of the most commonly abused deductions, partially because the regulations concerning just what you can and cannot claim are both strict and a little difficult to understand. The gist of it is that the area you claim as a home office needs to be used exclusively for business, and you need to stick quite tightly to obvious borders. Read more about these regulations in IRS Publication 587.
  • Mileage: While we highly recommend you deduct mileage, if you use your car for both business and pleasure, you’ve got to do a good job of tracking and separating the two. Keep in your car a little book with columns for start and end mileage, date, and description.
  • Meals and Entertainment: Again, deducting for this is perfectly acceptable, as long as it’s within the realm of reason. Deducting for a good meal with an important contact is fine, but perhaps not if it costs several thousand dollars. Use a good dose of common sense to avoid this trigger.

5. Sign Up for Electronic Filing

Repeat after us: filing your taxes electronically will make your life infinitely easy. Through the Electronic Federal Tax Payment System, you’ll even be able to file your estimated taxes. It takes a little time to set up, but will be well worth it in the end.

6. Use Tax Software Made for Businesses

Likewise, tax software can make your life so much easier, as can accounting programs that automatically create reports and forms for you. File for free through the IRS, or compare a number of good tax programs here.

7. Hire an Accountant

You’re in business for yourself, and you may very well enjoy being totally self-sufficient. But hiring an accountant can mean outsourcing many of these steps. It can also ensure you’re not missing anything, especially in terms of new tax laws. Lastly, a good accountant will find you deductions and loopholes you could have never known existed (unless you wanted to read through a mass of byzantine tax documents in your free time…). All of these things make hiring an accountant an expense that pays for itself, at least in the beginning of your freelance years. Just make sure to do so early before they book up.

Take-Away

Filing taxes as a freelancer can be complicated, but doing so allows for numerous personal benefits. Take the time to learn the regulations and get to know the forms so you can take advantage of all there is to offer and also cover all of your bases.

Still Confused? Check Out This Tax Checklist

Author’s Bio: Adria Saracino is a marketer, blogger, and occasional freelancer. When not consulting on best business practices, you can find her writing about style on her personal fashion blog, The Emerald Closet.

Clarify Your Site’s Purpose and Stop the Terminator

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The average web page visit lasts less than one minute.

Humans are programmed to sort everything they see into familiar labels, or buckets. Our brains scan the immediate environment to find threats, food, competitors, and potential mates. Like the Terminator searching for John Connor, we make fast assessments and move on.

The same thing is happening with visitors to your blog or website.

You’re doing the same thing right now reading this blog post. You read the headline, decided it was applicable to your situation, and started scanning. Maybe these quick bullets will keep you reading.

Tactics for Building a Useful Web Presence

  • Use your Google Analytics to view landing and exit pages. If certain landing pages lead to an immediate exit, tweak the content. Keep testing what is resonating with your visitors.
  • Have a clear path. People don’t usually land on the home page and click a giant “buy” button immediately. Have a plan for how you want visitors to progress through your information, and where you want them to end up.
  • Use markers like arrows, visual flow, friendly text. Design can’t be an afterthought. In “Terminator” mode, people need simple visual clues about where to click next.
  • Make your “ask” very clear. Is your site supporting a business? What are you selling? Is it a hobby/journal blog? Are you supporting a non-profit? Don’t make your visitors guess.
  • Declutter. Set up a routine review of your blog or website, with the intention of taking out anything that’s not crucial. Old badges, social buttons, ads that aren’t getting clicks, be ruthless, like you are with your closet.
  • Stop sending people away to other sites. You may have noticed that a lot of the big bloggers have started removing their “follow me on…” buttons from the home page (replacing it with email capture instead). Consider whether you really want to send your visitors away like that.
  • Check your mobile experience too. Whip out your smartphone and look at your site. Is it fugly? Do something about it! Here’s a handy post from Shonali Burke if you’re running WordPress.

Why do you have a blog or website? How do you make that clear to your visitors?

Author’s Bio: Rosemary O’Neill is an insightful spirit who works for social strata — a top ten company to work for on the Internet . Check out the Social Strata blog. You can find Rosemary on Google+ and on Twitter as @rhogroupee

How to monitor the health of your online business

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by Rosemary O’Neill

These days, everything around us has a built-in indicator to tell us when something’s wrong. My car has been telling me I need “Service A4” for about a month now. Our iPhones have battery life indicators. Even my kids’ school lunch account pings me when it’s low.

But there’s no handy-dandy centralized indicator to tell you when your online business needs maintenance.

Key indicators for your business
Keep an eye on your key indicators

There are so many things to keep an eye on when you’re a small business owner or an entrepreneur.  
 
Industry developments, customer challenges, payroll, legal requirements, and (if you can squeeze it in) planning for the future, all must be monitored. Toss social media tracking and reputation management in the mix, and you’ve got a recipe for stress.

Let’s set up a manageable system that tracks only the most important indicators. Pull out your business plan and/or marketing and sales plan. What are your key milestones for success? What is your “red line” you can’t go below as far as sales pipeline or conversions?

Bearing in mind your goals and critical areas, here are some of the items you might want to add to your weekly checkup. I use simple spreadsheets.

Brand awareness indicators

Set up Google alerts on your company name and your own name, as well as your product name(s).
 
Visit Topsy.com for mentions on the web and on social networks (you can set up alerts or periodically check in). For the spreadsheet, you could track number of mentions over time to see if you’re on an upward trend.
 
Another indicator of increasing awareness is branded searches. In your Google Analytics, click Traffic Sources Overview. The keyword list will show you whether people coming to your site are typing in your brand name to get there. You could tally up the number of branded searches each week and track that trend as well.

Marketing and Sales Indicators

Again in your Google Analytics, track the number of new visitors over time. That’s a good indicator of increasing interest, and possibly marketing success.

Track true conversions over time. You can set up conversion paths within Google Analytics just by telling Google which action on your site represents a “conversion,” for example, subscribing to a newsletter or clicking the “buy” button. Conversions can also be tracked by dividing raw unique visitors by number of sales over a given time frame.
 
If you’re using Hootsuite Pro, you can get reports of activity across all of your connected accounts. This is a good way to keep your finger on the pulse of your social networks. Are your Twitter followers increasing? Is your content getting shared? Your dashboard should include some idea of whether your overall network is increasing.

One other statistic to track is the number of new incoming sales inquiries. Most CRM systems make it easy to keep track of new leads, but it can be as simple as tallying the number of new email inquiries from a form on your website. That’s the top of your sales pipeline, so you want this number to stay healthy.

Revenue, of course, must be on your dashboard as well. Be detailed enough that you can see which lines of business are doing well and which might be struggling. That might mean breaking out products vs services.
 

Planning for the future

Just as you get periodic checkups from your doctor, you should re-evaluate your plan and dashboard indicators routinely.

Weekly updates on the spreadsheets plus a quarterly plan review will keep you on track and allow time for course correction if necessary.

What are your key indicators for the health of your business?

Author’s Bio: Rosemary O’Neill is an insightful spirit who works for social strata — a top ten company to work for on the Internet . Check out the Social Strata blog. You can find Rosemary on Google+ and on Twitter as @rhogroupee

Thank you, Rosemary!

You’re irresistible!

ME “Liz” Strauss

What might trigger a Tax Audit for your Small Business and How to Steer Clear

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Payroll, shipping, invoicing, client communications – with so much going on a small business often starts to feel like a three-ring circus, and as the owner or manager of a small business, you might feel like the overworked ringleader. One aspect of owning a small business that can strike fear into an owner’s heart is being pinged by the IRS for an audit.

As a small business owner, the chances of your taxes being audited by the IRS are relatively low. According to the IRS, only about 1 percent of personal taxpayers are audited, but small business owners have a slightly higher chance of facing an audit i.e. about 2.5 percent. There are various ways small business owners can trigger an audit, from simple mathematical mistakes to fudging your numbers to posting losses in multiple years. Here are some of the biggest mistakes small businesses owners can make on their taxes that may trigger a tax audit and how you can steer clear of these mistakes.

Exorbitant Claims

Many business owners like to regularlymeet clients face-to-face, and this might include the occasional dinner or cup of coffee. The IRS is very strict on claiming this type of deduction, so before you add it to your return, read up carefully on the guidelines. As a rule of thumb, you can deduct 50 percent of your business-related meal and entertainment expenses, including the cost of food, beverages, taxes and tips. Also allowed are any activities considered to provide entertainment, including nightclubs, sporting clubs, theaters, sporting events or vacations.

You are unable to deduct club dues or membership fees, fees for use of entertainment facilities (including any you own and for which you pay maintenance fees) and out-of-pocket expenses. Additionally, some gifts are deductible, but no more than $25 for business gifts per person during a tax year.

Steer Clear Tip: Keep your receipts with detailed notes on each entertainment event or meal you deduct. Make sure you note the business purpose, a description of the event and the business relationship. If you have your notes in order, you can easily present them and avoid an audit for your small business.

Home Office Claims

Many small businesses owners, especially those who work the majority of their hours from their home or work virtually, think they can deduct their home office.  Others may be tempted to stretch their definition of a home office. While the IRS encourages you to consider the Home Office Deduction, they are rather strict on the definition of a home office.

According to the IRS, your home can be considered a home office if part or your home is used exclusively or regularly as your principal place of business, as a place to meet clients or customers or any area not attached to your home (i.e. a separate structure on your property) that is used for business.  Special rules apply for day-care facilities and home offices used to store business inventory or product. The amount you can deduct depends on what percentage of your home is used.

The terms “exclusively” and “regularly” are the key. An extra room or study with a desk, bookshelves, and other office “equipment” used specifically for work – and rarely if ever for personal use – qualifies.  A desk in your living room where you set up shop a few days a week does not.

Steer Clear Tip: Read the IRS rules very, very carefully before considering the Home Office Deduction. If you’re not sure, contact a tax expert or don’t take the deduction.

Reporting More Losses Than Profits

Self-employed small business owners likely must fill out the Profit or Loss from Business (Sole Proprietorship) form, otherwise known as the Schedule C. This form reports what you made or lost in your business in the tax year.   Any type of business can be reported on the Schedule C except for farming and rental activities, and is calculated by taking the income from all sources and subtracting business expenses for a net profit or loss for the business.

You never expect a loss for your business, but in this economy, it happens. However, if you report losses three out of five years, it’s a red flag for an IRS audit, and they may determine your business is a hobby and your Schedule C loss will be disallowed.

Steer Clear Tip: Make sure you keep documents, receipts and detailed notes for your business and conduct it in a business-like manner. The burden of proof is on you to prove your business is legitimately a business and not just a hobby. If you’re losing money year after year, talk with a tax professional.

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Rahil writes on topics related to small business and marketing. If you are looking to start a small business, you might be interested in Sales tax training, if that’s the case you can visit this website and Take sales classes online. The website offers all kinds of sales and tax classes.

A Checklist for Building a Solid Partner Relationship

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Moving With New Tools to New Relationships

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The past few years bloggers and brands have worked together to move messages through communities and across the Internet. It was a natural transition for a broadcast-based system to move some of their marketing and advertising from print publishers to online audiences.

In many cases, what has occurred is that brands have chosen to use the new tools with an outdated view to how reaching customers work. Though the brands have given this new relationship a new name – blogger outreach – that implies relationship, the goal behind the outreach is often still product mentions in the form of blog posts and eyeballs looking at them.

It may be easier on the short term to hire a blog post or offer something free in hopes of getting bloggers to write about it than to develop a relationship, but as more big and little brands bombard big and little blogs with pitches and product samples, the less attention any brand can get.

And it always was true that …

Old thinking and old methods aren’t the best use of new tools in a new cultural mix. The best brands — businesses big and small — are already making the move from outreach and focus groups to partnerships. The best business bloggers are taking the initiative to build relationships like that too.

A Checklist for Building a Solid Partner Relationship

Great brands, savvy small businesses, and the best business bloggers know the best business relationships are a partnership in which both sides align goals and work together on a shared mission not a single campaign or opportunity. Here’s a checklist for building a solid partner relationship that can do that.

  1. Check for similar team size and bias toward action. What you’re looking for is a similar time-goal orientation. If your business can turn on a dime and needs one person to make a decision, you’ll be at a disadvantage working with a business that is highly driven by several step processes. The business with the most approval stages always wins control.
  2. Check for shared values and like standards. What you want to determine is that you and your partner agree on what makes great work and great service to each other, the business, and the customers. These intangibles can’t be described in a contract. They have to be discussed deliberately. Do that.
  3. Check that you have the same vision and mission in view. What’s important to determine here is that your mission critical goals for the work are truly aligned, that you see the same ending outcome, and that you’re sharing the same kind of risk. Find out before the work starts if your views don’t match — you don’t want to find out later that you were building a partnership and the other team thought of you as a channel of distribution.
  4. Check that you agree on roles, process, and vocabulary. What you want is concreteness of the “how” the partnership will work. This conversation will bring you to who owns which part and what responsibilities go with that.
  5. Check that you have clear boundaries and realize differences in your time-goal orientation. What you want to bring up here is the idea of “scope creep.” How will you alert each other when the relationship needs re-balancing? What will be the communication methods for changes to the plan, the process, or resource and budgetary needs?
  6. Check that you have discussed how you will share the risk and share the benefits. What is important here is a conversation about how the vision will play out, what will be required from both teams to secure the win, and how the rewards will be shared when you bring it in.

This checklist is a conversation that stands outside the making of a deal memo or a contract. It’s a relationship meeting of the minds. The accuracy of the conversation needs to be tested after you’ve gone through the checklist. You can do that easily by following these two rules.

  • Take one small unit of work through the process to verify your thinking about the roles and the scope of the work. At each step of that prototype, keep what worked and revise what didn’t.
  • Throughout the relationship, review the results quickly, constantly, consistently and adjust to keep improving the process and the relationship. As you build trust, sleek down the checkpoints to let each partner do their work without unnecessary interruption.

Sound like a lot? It’s really not. If you think about it, it’s two meetings and keeping your head, heart, and vision in the partnership. They say a good partner can divide grief and multiply success. I can tell you that this process can bring you a lot closer to ensuring that.

How do you build a solid partner relationships?

–ME “Liz” Strauss
Work with Liz on your business!!

I’m a proud affiliate of

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SOBCon08: A 10-Point Action Plan Checklist for a Successful and Outstanding Blog

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How Biz School for Bloggers Was Born

You might wonder why there was no call for speakers at SOBCon08. It was because we wanted to present some highly structured valuable content.

So many bloggers are looking to build a blog that attracts a solid community of readers, we wanted to make sure that they got the models and the interactive time to see how to apply those models to their own situations.

So SOBCon08 was built in an unusual fashion. We structured the content to meet 10 key points of a Successful Blog Action Plan. Then we invited hand-picked experts — experienced pros who could provide tested models in short targeted sessions. Their fluency and ability to offer clear models brought focus and freed up time. That time allows participants to apply each model to their own situation while the experts are still in the room.

The experts became speaker/presenters and the participants became six-person mastermind teams. Biz School for Bloggers was born.

10-Point Action Plan Checklist for a Successful and Outstanding Blog

Whether it’s is a hobby or it’s a place to make money, every blog is a business of sorts. The content is a product. The writing is a service that we perform. Our readers are the customers. Successful bloggers market and promote our blogs in the same ways that any business markets online.

Yet, we often don’t think much about the goals of our blogs in a structured fashion. It’s easy for hidden assumptions to creep in. Sometimes we forget to ask whether what we’re doing is the right thing to get us where we want to go.

Biz School for Blogging is built around a 10-Point Action Plan Checklist for a successful blog — 10 Structural Assumptions that every blogger should consider and question about his or her blog.

  1. Know the purpose. Is the blog a hobby or business OR is it meant to extend the hobby or business for an audience?
  2. Match the structure to the purpose. Does the structure of our online model supports the purpose we’ve defined?
  3. Determine the content boundaries. Have we decided what sort of content belongs on our blogs? Is that answer immediately clear to first-time visitors?
  4. Describe the ideal reader/customer. Have we figured out what sort of readers will love what we do? Do our blogs reflect our promise to them in every way?
  5. Manage our time investment. Do we spend our editorial time efficiently OR do we spend time working on things that our readers don’t care about?
  6. Choose social network sites with goals in mind. Have we chosen to use the right social networking sites to match our goals?
  7. Determine which new media options fit our goals. Do we know which new media options are appropriate for what we’re trying to accomplish?
  8. Know how to use the stats that match our purpose. Can we talk with authority about whether visitors are converting into reader/customers?
  9. Make everything “sticky.” Do we know how to make an irresistible environment that offers something that readers can’t help telling their friends about?
  10. Have an exit plan. Have we given a thought to what we will do with our blogs when we find we no longer want to keep blogging?

At SOBCon08, we’re going to go through that Action Plan Checklist one by one. Eight expert speaker/presenters will provide eight models or model choices. Participants in six-person “mastermind” teams will use the models to discuss and define that key point in terms of their own goals. By the end of the day, each participant will have an actionable plan for a more efficient, more reader-focused blog.

But don’t miss the more subtle “take away” that will also occur.

By the end of the day, every participant will have five new working relationships. For each person on their mastermind team, participants will be beyond the “Oh yeah I met that person at SOBCon,” and instead be able to say “We worked together in 2008.”

It’s very cool.

Isn’t it time that you register now?

–ME “Liz” Strauss
Work with Liz!! SOBCon is a business strategy workshop held every year in Chicago the first weekend in May. Register now!