20 Tax Experts Reveal the Most Important Tax and Accounting Considerations for Freelance Consultants

The first few months of the year are usually met with great enthusiasm and optimism for all types of business professionals alike, refreshed from the holidays and ready to meet and exceed new business goals. That is, of course, until you inevitably bring up one dreaded five letter word: taxes.

Since Zintro works directly with many freelance consultants who have unique tax and accounting needs, we sought out to discover some tax and accounting tips that would be especially beneficial to professionals in this dynamic line of work. More specifically, we wanted to gain advice directly from tax experts on their top tax and accounting tips for freelance consultants. To do this, we asked 20 tax experts to answer this question:

“What are the most important / overlooked tax and accounting tips / considerations for freelance consultants?”

We’ve collected and compiled their expert advice into this comprehensive guide to better tax and accounting for freelance consultants. See what our experts said below:

Meet Our Panel of Tax Experts:

Mark SteberMark Steber

Mark Steber serves as Chief Tax Officer with Jackson Hewitt Tax Service, Inc. With more than 26 years of tax experience and deep knowledge of the federal and state tax codes, Mr. Steber is responsible for several key initiatives to support overall tax service delivery and quality assurance. He also serves as a Jackson Hewitt liaison with the Internal Revenue Service and other government authorities. In addition to his work with Jackson Hewitt, Mr. Steber was elected Chairman of the Electronic Tax Administration Advisory Committee (ETAAC) for the 2011-2012 session.

These are my top tax tips for freelancers:

  • You can deduct up to $5,000 of your set-up costs, like legal fees, training, market analysis, advertising of opening, etc., right away and deduct the rest over 5 years.
  • Half or your self-employment tax, the Medicare and Social Security taxes you must pay on your profit, can be deducted directly from income on Form 1040
  • You can claim a direct deduction against income for qualified health insurance costs (even if they purchase insurance from the Marketplace)
  • A deduction for the portion of your home used as an office (this one is good because it can be complex and is a great call to action since so many self-employed taxpayers forget it)

Aubrey LynchAubrey Lynch

Aubrey Lynch, CPA is Principal at CS&L CPAs and specializes in International Tax, Estates and Trusts, and the Healthcare Industry. Prior to joining CS&L CPAs, she previously worked with a Big Four firm in Atlanta and has extensive experience in Estate and Succession Planning. Aubrey offers full service tax consulting and compliance in all areas of taxation, and her clients find it especially helpful that she is skilled in International Taxation. Her knowledge of this subject provides valuable advice in the highly complex and increasingly regulated area of taxation for foreign entities. Aubrey is the past President of the Manatee County Estate Planning Council and is a member of the Southwest Florida Estate Planning Council.

Taxes become very complicated once you become self-employed (aka a “freelancer”), so it’s important to review your situation very carefully since self employed individuals tend to have higher audit risks. Some opportunities freelancers often overlook include:

  • Professional development or memberships – any association or professional memberships (excluding country club dues) you may belong to for your work are tax deductable, as well as most professional development courses that are work related.
  • Setting up a home office – if you’re using your home office to meet with clients as your principal  place of business, you can use this as a deduction. This home office doesn’t have to be a separate room, but must be a designated spot in your home that is strictly used for business purposes. Office equipment or supplies can also be deducted.  There is a simplified method available that makes tracking expenses less cumbersome.
  • Deducting your mileage – you can claim 56 cents per mile for mileage incurred in 2014 or your actual automobile expenses. Make sure to keep proper records for your business-use mileage.
  • Once self-employed, you are able to deduct items such as health insurance and certain retirement plan contributions “above the line”, so be sure to consult with a tax advisor on how to capitalize on these deductions.

Kevin-HopsonKevin Hopson

Kevin Hopson, CPA is the CEO of tax preparation software company, TaxPoint.

These are some of the most overlooked tax deductions for freelance consultants:

  • Mileage deduction
  •  Home office deduction (whether  you own or rent)
  • If you bought a new mobile phone, computer, printer, fax or any other equipment for your job.
  • SEP – Self-employed retirement plan contribution.
  • Health insurance deduction – if you are self-employed, you can deduct your health insurance premiums on page 1 of your tax return.

Michael BreierMichael Breier

Michael Breier is the Founder and CEO of Breier Consulting, a firm that provides professional consulting, accounting and tax compliance services for businesses and individuals. Michael is a senior executive, leader and general manager with over 30 years of experience as a Partner, Business Consultant and CIO and has combined extensive knowledge of business processes and operational practices of privately owned professional service firms, construction and manufacturing companies through the use and integration of technology.

When it comes to the most overlooked tax considerations for freelance consultants, this is my advice…

Most freelance consultants use a home office and their vehicle extensively in the conduct of their business. Tax deductions for these items can be substantial and should not be overlooked.

But caution; home office and automobile deductions are by far the most audited deductions and draw a large share of the IRS’s attention. Why? The documentation and rules to qualify for these deductions are complex and cumbersome. Upon audit, these deductions are easily denied by the IRS based on lack of substantiation.  Know the rules and be meticulous in the substantiation of these deductions. That way, you can rest easy and enjoy the yearly tax savings.

Venar-AyarVenar Ayar

Venar Ayar, attorney-at-law, is the Principal and Founder of the AyarLaw Group and has more than a decade of experience as a tax and accounting professional, including 5 years as an IRS defense lawyer. Ayar focuses his legal practice on IRS tax resolution and Michigan tax resolution. Ayar has developed his practice through extensive experience in representing clients before the IRS, along with numerous state taxation authorities, including the Michigan Department of Treasury.

Here are the most over looked accounting tips for freelancers: 

  1. Tracking your income: you must record all freelancing income no matter what amount it’s for, when tax season comes around you’ll be forced to report it anyway. Recording your income throughout the year will save you a lot of time when it comes to taxes and will help keep your organized throughout the year.
  1. Tracking your Expenses: Same rule goes for recording expenses as it applies to recording Income. You will need the information for Schedule C of your tax form. Tracking your expenses also determines whether or not you earn a profit with your freelancing business. Many freelance writers are confused about what types of expenses they should record, expenses as simple as advertising costs, dues for professional organizations, health Insurance, office supplies, telephone expenses and software. Keeping track of these costs will help you stay organized and make you a lot more efficient.
  1. Setting money aside for Taxes: Typically a traditional employer withholds part of your pay to cover your income tax liability. For freelancers this does not happen, you must set aside money for you income tax liability and you now must include self-employment tax. If you are unprepared your first freelance bill could come along as a shock, forcing you to pay thousands of dollars.

Seth-DeitchmanSeth Deitchman

Seth Deitchman is a Financial Advisor and Portfolio Manager at The Mercury Group at Morgan Stanley.

Some things we recommend our clients and friends who are freelancers to do are:

Every year review their contracts:

  1. Insurance (life, home, auto, long-term care and healthcare).  You can begin to pay less on a monthly basis.
  2. Cable, phone, internet, security, utilities – we often recommend bundling services where possible.
  3. Negotiate with your providers and ask for discounts for guaranteed work.  Meaning, if you are going to use their services for a year guaranteed then see if you can get the price lowered.
  4. Automatic payments – at times if you have a bill paid via a card on file (credit, debit) which they can draw from on a monthly basis they give discounts.

Gail RosenGail Rosen

Gail Rosen has been a practicing CPA for over 35 years and is well known and respected in the accounting and business communities. She established her firm, Gail Rosen CPA, in 1983 at the age of 25, after a fast paced initiation into the field at prestigious New York City accounting firms. Today, Gail leads the firm with the expertise and experience that has distinguished her as one of the area’s leading accountants and tax advisors for new business start-ups and expanding businesses. With her trademark energy and enthusiasm,Gail is a popular speaker for business and trade organizations and is frequently called upon to share her expertise and opinions with the media.

Here are my most overlooked deductions for freelance consultants:

1. Start-Up Costs: Small businesses are often not aware that any expenses that are incurred before the first sale are called “start-up costs”. These costs cannot be deducted until the first sale. Then they are deducted over 15 years and you can elect to deduct the first $5,000 in the first year of business. Many small businesses assume they can deduct all of their costs in starting a new business but they cannot until they have their first sale. Then costs are deductible based on the laws for that deduction.

Tax Tip: You should carefully evaluate whether you want to “hold” your start-up costs or elect to write off the first $5,000 in the first year of business.  It depends on what year you expect to be in a higher tax bracket.

2. Make sure your bookkeeping is in order so you do not miss business expenses: for an expense to be deductible it has to be “ordinary” and “necessary”.  Therefore, if you spend money on office supplies, businesses dues, business publications, accounting fees for your business, business cards, business entertainment (50% deductible), gifts (limited to $25 a person a year), postage, printing, continuing education, computers, software, etc… it is a business expense and you should keep good accounting books to make sure you do not miss any of these expenses.  Every deduction saves you a lot of money since a small business pays federal tax, state tax, and both sides of social security and Medicare (since they are the employee and the employer).

Tax Tip: make sure you spend time on your bookkeeping for your business so you do not miss tax deductions.  Each deduction is worth a lot of money to small businesses especially since they are responsible for paying both sides of the social security and Medicare (employer and employee side).

3. Do not be scared to take the home office deduction if you are legally entitled to it:  The home office deduction is a valuable tax deduction and some important thoughts about it include:

    1. The business space you deduct has to be used strictly for business purposes and it usually will not work if you are renting an office elsewhere.  The home office cannot be for your convenience.
    2. The IRS simplified the home office deduction and is giving you the option of using the “safe harbor” rule to calculate your  home office deduction.  You just multiply the square footage of the businesses square footage of your home * $5 per square feet to get your deduction

Tax Tips:

  • If you are legally entitled to take the home office deduction, you should consider taking it since it is a valuable deduction.
  • I recommend you make sure that you have your accounting data in order so that you can compare the safe harbor method to the actual method to see which one generates a better deduction for you.  You can switch each year which method you choose for the home office deduction.

4. Try the Auto both the standard and actual method to see which one is better for you; Take the time to try your auto expenses both under the standard and actual method.  Remember; you save a lot of money if one method is better than another.  There are restrictions on switching between methods after the first year.

  1. Standard Method: in 2014 it is 56 cents per business mile plus tolls and parking.
  2. Actual Method:  add up all actual automobile expenses and then multiply it by your business percentage (business miles/total miles for the year).

Note: Home office businesses have an advantage since the minute they walk out of their home the miles are deductible business miles.  If you have an office the commute to the office is not deductible.

Tax Tip:  Make sure you have records on your actual expenses so you can compare the standard and actual method to calculate your auto expenses and see which one gets you the better tax deduction. Note: once you pick one of these methods for deducting your auto expenses, there are restrictions on switching to another method.

Michael MernaMichael W. Merna Jr.

Michael W. Merna Jr., CPA, CVA has been with Schiffman Grow & Co since November 1992.  He is a graduate of The Ohio State University with a degree in Accounting and Business Administration, and became a Certified Public Accountant in 1993.  In 2012, Mike earned the Certified Valuation Analyst (CVA) designation.  On most days he can be found working with small business owners, helping them better understand their financial situation, as well as working on their accounting and tax needs.  He has over twenty years of experience in auditing, tax preparation and planning, both for the businesses as well as the owners and their families.

The most important tax and accounting tips and considerations I would offer to freelance consultants is…

Be sure to withhold enough for federal and state income taxes.  The federal will include employment taxes, which are often overlooked.  This could be as much as 35-40% of net profits, depending on where you work, income levels, and other factors.

Robert BlackwellRobert Blackwell

Robert Blackwell is a senior member of the certified public accounting firm of Levine, Jacobs & Company, LLC. He provides accounting, tax and consulting services for a diverse client base of individuals and closely held or family-owned businesses. Robert is also an active participant at the firm’s wealth planning provider, Cetera Advisor Networks LLC. Levine Jacobs & Company and Cetera Advisor Networks LLC are not related entities. Robert Blackwell is licensed to sell securities, mutual funds, life and health insurance as well as other brokerage products. Other areas of professional services include the establishment and administration of individual retirement accounts, IRA and 401K rollovers and Section 529 plans. He is a licensed Certified Public Accountant in New Jersey and New York, a Personal Financial Specialist (PFS), and a Chartered Global Management Accountant (CGMA).

One of the top tax considerations for freelance consultants is…

Mileage logs to properly account for mileage, destinations, who you saw and what was discussed.

Vincenzo-VillamenaVincenzo Villamena

Vincenzo Villamena is Managing Partner of the CPA firm, Online Taxman, a boutique CPA firm specializing in tax preparation for entreprenuers, US expats and other folks in special situations.

The most overlooked tax and accounting considerations for freelance consultants are:

  • Deducting items such as books, subscriptions, supplies, etc.
  • Setting up a SEP IRA or Solo 401k to contribute to and receive the deduction (SEP plans can still be signed up and funded before April 15 to apply in 2014 tax return)
  • Setting up an S Corp (US citizen/GC holders only) and paying yourself a reasonable salary (industry standard) and recieving the rest of the profit as a distribution, saving 15% on self employment tax (social security)

James A. TotoJames A. Toto

James Toto is a Partner at WeiserMazars LLP,  and has over 22 years of experience providing accounting, and tax preparation and planning services to high net worth individuals and families. His experience includes time at a Big 4 firm and regional and boutique firms, giving him a unique perspective on clients from a wide variety of backgrounds ranging from entrepreneurs to corporate executives, from family owned middle-market companies to larger, more complex multi-national organizations. He is a member of the American Institute for Certified Public Accountants, and a Past-President of the Middlesex/Somerset Chapter of the New Jersey Society of Certified Public Accountants.

The most important tax tip for freelance consultants is to…

Maximize their ability to save for retirement by using SEPs and defined benefit plans. Self-employed persons are allowed to make much higher pre-tax contributions to these plans in comparison to 401(k) plans and IRAs.

For those freelancers who live more hand to mouth, I recommend that they look at their situation through the eyes of their business.  Freelancers have the ability to take a tax deduction for every dollar they spend that is ordinary and necessary in the operation of their business (with certain exceptions like fines, penalties, 50% of meals, club dues, etc.). So, with that in mind, every time a freelancer makes an expenditure, they should consider whether it has an effect on, and furthers, their business.

Buffie PurselleBuffie Purselle

Buffie Purselle is a tax expert, business consultant, motivational speaker, and entrepreneur. She serves as the CFO of Buffie the Tax Heiress, LLC, a full service accounting and tax practice, and is a third generation entrepreneur and tax accountant with over 12 years experience in the tax and accounting industry. Buffie is a proud member of a very large family of tax accountants and holds professional memberships with the National Association of Enrolled Agents and the National Association of Tax Professionals. A lifelong entrepreneur and community ambassador, Buffie created, produced, and hosted her own weekly talk show, Teen Talk, on the largest local commercial radio station in Valdosta, GA at the ripe age of 14. Twenty two years later, the show is still providing teens with a public voice.

The best tax and accounting advice that I have for freelancers, aka small business owners, is…

Retain an accountant.

Sounds a little self serving, right? I realize that there are a lot of software programs available for small business owners.  I actually encourage you to use some of these programs. Freshbooks, Quickbooks, and 17hats are especially dope.

Having said that, sometimes it’s best to just spend a little money and retain a professional.  This is a tax deductible expense, so it’s pretty much guilt free shopping that will provide you with peace of mind.  How else will you know when it’s time to change your entity structure from a sole prop to an S Corp? Do you think software will tell you that?

Conrad LummConrad Lumm

Conrad Lumm is the Marketing Director of of SmartSign, the premier online sign retailer.

Here are my tips for the most important  tax and accounting considerations for freelance consultants:

  • Before you invoice for the first time, ask your client’s accountant what their preferred filename and/or invoice numbering system is. Keeping that system in mind can help ensure quick payment.
  • It’s useful to keep an encrypted/locked spreadsheet of your bank accounts’ SWIFT codes, account numbers, and addresses on hand, particularly if you invoice overseas clients.
  • Clearly establish time limits for payment in your invoices’ footers. That way, if you need to nag a client who’s fallen behind, you can point to the footer copy (best as a last resort).
  • Particularly when working on a short-term basis with a large organization, it’s worthwhile to meet the person who will process your invoices in person. Find an excuse for a conversation if at all possible. It’s easy to fall through the cracks when the people writing your checks can’t put a face to your name!
  • If you’re a full-time freelance consultant, most employers won’t deduct enough taxes automatically, so nothing is more important than setting aside a portion of each paycheck (I’d suggest at least 20%). It’s worth making considerable sacrifices for; when taxes come due or if you hit a dry spell, you’ll be glad you did. Make a game of it – see on a week-to-week basis what percentage of your paycheck you can sock away. The best time to splurge is in late April or early May, once you’ve settled your irksomely high, self-employed-level taxes with the IRS – not before.

Peter-C.-BrehmPeter C. Brehm

Peter C. Brehm is a Partner with Business Law Center, PLC, in Bloomington Minnesota.  Peter advises small business owners on business tax issues, succession planning, buying and selling businesses, and other matters specific to small business owners.  He is also an adjunct professor at William Mitchell College of Law in St. Paul, Minnesota.

Every person who goes into business as an independent contractor or consultant should consider these basic steps:

  1. Setting up a separate business entity or employer identification number (EIN).  Many people start their careers as consultants by accident, or with a vision that they will try a couple small projects and see how it works out.  Consequently, they often fail to set up a separate business identity from themselves.  There are a number of reasons to set up a limited liability company, or a corporation, but the simplest reason is that, come tax time, you will have to send your tax information to the people you worked with.  If you set up a business, or at least apply for a separate EIN, you will send them a W-9 with your business information instead of your Social Security Number.  Obviously, the more successful you become, and the more people you work for, the more people will have access to this information.  So, protect your social security number by getting a separate EIN.
  2. Self-Employment Tax Planning.  As an employee, you paid 50% of the Social Security and Medicare taxes on the money your earned.  Your employer paid the other half.  As your own employer, you get the privilege of paying all of it, and this is referred to as Self Employment Tax.  This means that a little over 15% of every dollar you earn as a wage is paid in taxes above and beyond your income tax.  So, as a sole praetor, if you made $100,000 in profit in the year, you will pay over $15,000 in Self-Employment Taxes.  If, however, you set up an S Corporation, you only pay the tax on the wages you earn, not the dividends.  So, if you paid yourself $50,000 in salary, you would pay $7,500 in taxes.  The remaining $50,000 could be paid to you as a dividend, saving you $7,500 in taxes.
  3. Documenting Business Expenses.  Every dollar you put into your business should be documented at the time it is made.  If it is a loan you should have a piece of paper somewhere saying it is a loan, and the terms of the loan.  It doesn’t have to be fancy, it just has to exist.  Similarly, every item of expense that you plan to deduct should be documents at the time of the expense.  Receipts for lunches should note the meeting, and the business purpose.  Mileage should be written down.  If you went to a store and purchased several personal items along with some business supplies, note on your receipt which is which.  Having said that, for better recordkeeping, you should have separate bank accounts and credit cards for your business, so that you don’t end up co-mingling funds.
  4. Hire a good bookkeeper.  You are smart, and you know math, right?  So how hard can it be to keep your books?  Well, it is harder to do right than it is to do wrong.  Find a good bookkeeper that know what they are doing, and will educate you on best practices.  Prepare to pay them to (at least) set up your bookkeeping system at the very beginning so that everything is clear and easy for you to enter.
  5. Pay your taxes as you go, but not too much.  If you are making money, you are going to owe taxes.  That’s the way it goes.  If you don’t pay your taxes along the way, you are borrowing that money from the government, and you are going to have to pay it back.  If you pay too much in, you are loaning money to the government at not very favorable terms.  With a good bookkeeper, and a good bookkeeping system, you should plan to pay your estimated taxes in smaller payments.  And if you do it right, you should owe an amount that is easily payable by you, and avoids any interest or penalties.

Carrie SmithCarrie Smith

Carrie Smith is a Financial Writer, Money Maverick and Founder of Careful Cents, a private newsletter and group where over 300 members collaborate to find answers to their creative ideas, productivity and financial issues. She helps creative entrepreneurs and freelancers overcome financial mountains so they can make a living off their passion.

This is my top tax advice for freelancers…

Freelancers usually don’t realize they are REQUIRED to pay quarterly taxes throughout the year. The most common question is “What will happen if I don’t pay my taxes, in case I don’t have the money?” and to that I say, you need to find the money. If you file your taxes on April 15th and haven’t paid any money in, you will likely owe a large tax balance, as well as be slapped with penalties and fees associated with not paying quarterly estimated taxes.
I know it’s not fun to pay in thousands of dollars to the IRS every quarter (I make a check out to them too), but it will enable you to stay in their good graces, as well as save your hard-earned money for something other than tax fees and penalties. There are several options available if you can’t pay the entire tax balance, but it’s better to come clean and take the initiative, than to have the IRS seek you out.

Noel-DalmacioNoel Dalmacio

Noel Dalmacio, CPA, CFP, MS Tax has over 22 years of public and private experience in the areas of tax compliance, tax planning/strategies, accounting and financial planning. He is the president of Dalmacio Accountancy Corp in Irvine, CA. He is also the president of Lower My Tax Now, an educational tax company that provides various tax information programs and products.

Here are my most important and accounting tips for freelance consultants…

  1. Detailed records is the key. Keep separate bank and credit card statements solely for the consulting business. Likewise, make sure you keep receipts and other support. For meals and entertainment, travel and mileage, IRS wants you to answer the 5 “Ws”: With whom, what, when, where and why.
  2. Utilize your home office. Make sure you take advantage of using your home office for added tax deduction. At the minimum, if you use your home office for administrative purposes you can qualify to use it. And to top it off, now you can deduct round trip auto mileage from home to a business destination.

Paul HermanPaul Herman

Paul Herman is the Founder and Owner of Herman & Company CPA’s, PC, a full service accounting firm located in White Plains, NY since 1981.  The firm provides knowledge, experience and creativity for the benefit of their individual and business clients.

My most important tax and accounting considerations for freelance consultants are…

1.      Separate your business and personal accounts. Using one bank account rather than having separate personal and business accounts is not a smart idea. Always make your business purchases using your business checking account or credit card. It will make life much easier when it comes to tracking your business expenses. If you have more than one credit card, always use one for business related expenses and one for personal charges.

2.      Deductions are your friend. More deductions means the less taxes you have to pay. The IRS defines a deductible expense as one that is both ordinary and necessary to your business. I like to say that it is an expense that helps generate your income.  If the expenditure doesn’t help you generate income, it is probably personal in nature and therefore not deductible. Home office expenses, business travel and website expenses are all examples of allowable tax deductions. Make sure that you that have the accompanying documentation to back them up!

3.      Put aside some of your revenue for taxes. Many new freelancers make the mistake of thinking they can keep all of the money they are paid by their clients because there is no withholding tax.  They face a rude awakening when they find out they owe a large sum in taxes. It’s a good idea to set aside a designated amount from each customer check specifically for tax payments.

4.      Stay on top of estimated payments. Since you’re taking in income that doesn’t have any withholding, you need to be making quarterly estimated tax payments. These can be done using Form 1040-ES. These aren’t an option, and you could face penalties and interest if you don’t pay them!  Your tax preparer can suggest how much to pay and when.

Theodore D. LanzaroTheodore D. Lanzaro

Theodore (Ted) D. Lanzaro, Jr. CPA is the Founder of Lanzaro CPA, LLC, a national boutique CPA firm specializing in strategic tax minimization services and accounting for the real estate industry. Lanzaro CPA brings real estate investors the expertise and services they really need to be successful in their business and minimize the amount of income taxes they pay annually. Ted is also an expert real estate investor and broker with 12 years of experience as a residential landlord and real estate rehabber.  For the past 24 years, he has helped thousands of real estate business owners, entrepreneurs and investors all over the United States implement cutting edge tax strategies that save them thousands of dollars annually on their taxes.

The biggest tax tip I think freelance consultants should take is to…

Keep good records.

Sounds simple but people who keep lousy records miss a lot of tax deductions.  Being a good record keeper is the foundation to use all other tax strategies.  It allows me as a CPA to be aggressive in taking deductions because I know the client has the necessary back-up – mileage logs, receipts, checklists, etc to back it all up.

Another is doing year-end tax planning.  There are many things you can do before year end that can help a freelance consultant save on taxes that are not available after year end – things like deferring income until the following year, prepaying expenses, purchasing necessary fixed asset for the depreciation deduction and setting up a retirement plan that maxes out your contribution.

Miranda MarquitMiranda Marquit

Miranda Marquit is a Freelance Journalist and Money Expert, and she provides content to a number of financial web sites including primarily PlantingMoneySeeds.com. Her work has been mentioned in USA Today, The Huffington Post, The San Francisco Chronicle, The New York Times, Consumerist, The Atlantic Wire, The Wall Street Journal, The Washington Post, and other publications.

When it comes to the most overlooked tax accounting tips for freelancers, this is my advice:
As a freelancer, there’s a lot that you have to worry about when it comes to taxes. You should set up quarterly tax payments, and you need to remember to pay your state taxes. Many freelancers forget about paying taxes when they go to work for themselves.
For recent years, another issue has been the 1099-K. Keep track of which clients pay you through PayPal or other third-party processors. If you are issued a 1099-K, and your clients issue you a “regular” 1099-MISC, you will have your income double-reported. You should reconcile your 1099-K with your 1099-MISC forms for your own records. The IRS doesn’t require it when you file, but it’s good to have it done in case there is an audit.

Anthony AlfidiAnthony J. Alfidi

Anthony J. Alfidi is the CEO of Alfidi Capital, a free resource to educate, enlighten, and entertain the investing public.

The most important tax tip for freelancers is…

The deductibility of travel costs as business expenses.

Freelancers should keep all receipts for gasoline, plane tickets, and mass transit rides that were directly related to conducting business.  Check the IRS rules on deductions to see how these must be reported on a tax return.
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