Are You Paying More Taxes Than You Need To?

The picture below is of a romantic anniversary dinner I had on the beach in Cancun. The trip … courtesy of one of my clients who gave me a week’s stay at one of their all-inclusive five-star resorts in Mexico. Just one of the perks of the writer’s life that you can enjoy too.

When I left for this trip, I was running late. So I waited to eat until I got through airport security.

As a result, I paid almost $12 for a sandwich and a bottle of water, nearly double what I would have paid before I got to the airport.

How often have you done something like that—paid more for something than you should have?

That can happen in your freelance business too—more often than you may be aware of—if you don’t get a handle on your finances.

Fortunately, there are timesaving, simple things you can do to keep things in order and prevent you from paying more than you need to.

This week, I’ll be giving you tips on how to manage your finances and run a more profitable freelance business.

To get you started, I want to highlight three things you can do right now, today, to avoid freelance pitfalls that frequently cause freelancers to spend more than they need to on taxes.

Make an appointment with an accountant. One of the best pieces of advice I ever received when I set up my first business was to meet with an accountant.

Even if you plan to do your own taxes, it’s a good idea to consult with an advisor who is an expert and up to date on the latest laws and tax-saving strategies. Getting advice up front will help you determine the best business structure and what you can and can’t write off.

Don’t wait until tax time; do this immediately—even if you don’t have any clients yet. You're likely incurring expenses today that you can write off.

Save EVERY receipt. Ben Franklin said, “Beware of little expenses, a small leak will sink a great ship.” One of the biggest areas that freelancers lose money on is not saving receipts. Thinking that trip to the post office or the small number of copies you made at OfficeMax won’t make a difference can be a costly mistake.

Those little expenses can really add up. In fact, my husband, who isn’t good with receipts, ended up finding an additional $900+ in “little expenses” when he went through his credit card bill at tax time. Unfortunately, there’s no telling how much he spent that didn’t show up on the charge card. Those expenses are lost forever. And that can make a BIG difference come tax time.

No matter how small the receipt, save it for your taxes. Keep an envelope in your wallet for business receipts. Or use one of the smartphone apps, such as Evernote Receipts, which allows you to save detailed expense reports, receipt photos, voice memos, and file attachments about the receipts.

Keep track of your mileage. If you’ve never written off mileage, this may take a little getting used to. Keep a mileage log in your car to write down the date, where you travel to, and how far you drive. Record trips to the bank, the office supply store, seminars, networking events, client visits, etc.

Put these three simple and easy-to-implement steps in place now, and you’ll set yourself up for less stress come tax time. You’ll find fewer leaks in your finances, which means you’ll pay less tax and keep more of your earnings at the end of the year.

How do you keep track of your receipts, expenses, and mileage? If you have a tip or story to share about managing (or mismanaging) your finances, share it below.

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Published: July 30, 2012

7 Responses to “Are You Paying More Taxes Than You Need To?”

  1. I use Google Documents, with a spreadsheet divided into the Expense categories on my tax form. All the data goes in the spreadsheet, while all the receipts go in an accordion folders. At tax time it's just a matter of double checking.

    I know there are fancier programs out there, but since I live overseas, most of them don't serve me well (some won't even load in my area). So I've made a system that works for me - and I agree, all the little things add up!

    Jennifer AdamsJuly 30, 2012 at 3:51 pm

  2. Hi Cindy,

    I have Quickbooks and have set up accounts for my writing business, my household expenses and my other business. All expenses are then tracked in the appropriate account.

    I have a scanner at home and I scan receipts each week. Then I "file" the receipts in the appropriate business folders on my computer. At tax time, it is all ready for my accountant who does the rest.

    Many thanks,

    Karen

    Karen RussellJuly 30, 2012 at 5:46 pm

  3. At the end of your article you asked for tips on keeping track of milage and other expenses. My local insurance co. representative company gives out to their clients daytimer books at the end of each year. These books have two days on each page, with hour divisions, and Saturday and Sunday on the same space as a weekday. When I got for a job interview, head to a job when I have one, go to a doctor, or any other activity that might be a potential tax deduction, I write down the time I leave home, the mileage on my odometer, and where I am going. At each stop I write down the same information and where I am at. When it is time to go to the next location I write down my destination and the time and mileage again. At tax time I give this book to my tax preparer and it is very easy to keep track. At every stop where you buy something you can also get and keep the receipt. If you get used to doing this you can even bring a manila envelope with you and every month, if you get that ma

    Guest (Down Town Gary Brown)July 30, 2012 at 11:09 pm

  4. Great tips Cindy. Little things do add up. Just takes some...er, maybe a lot of... discipline to keep up with it. Nice perk by the way. Did you have to declare that?

    Alan SteacyJuly 31, 2012 at 9:25 am

  5. Excellent comments. Personally I use Quicken for Business and I find it very helpful.

    Another thing to think about at tax time is contributing to a SEP IRA account for retirement. Takes a chunk out of the taxes and helps save for a comfortable retirement.

    Patricia WallsAugust 3, 2012 at 4:30 pm

  6. Hi Cindy, You are right about alerting each one to keep track of every single receipt, paid by check or cash, and each mile for anything done while driving for your business. I am a tax practioner for 39 years and it needs to be stated to also keep very good records on the income as well. I find most will receive 1099's but there is the chance that it will not be sent out for some reason, lost in the mail, because of a move, or whatever reason that sometimes not all income will show up on 1099's. Therefore, keep your own records as the IRS and State if a taxable state holds each one liable for their complete income. Each cent of deductions is a cent against income, therefore, it is very important to be very mindful to keep ALL records with mileage as one of the main deductions. Why pay taxes on money you have deductions for and were careless to keep good records. Good records is one of the main keys to being successful in any business. Keep them in a way that works for you but b

    Guest (Shari)September 11, 2012 at 1:05 am


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