Living your best laptop lifestyle, are you? You've been working for yourself and recording some amazing content, raking in clients and working with repeat customers. Your business is booming! But now, it's the ever dreaded tax season, and you don't know how to navigate a turbo tax program let alone claim all of your deductions.
Stop. Take a deep breath. You are going to have to practice some intense self care which includes speaking kindly to yourself. Because if you spent most of last year just enjoying raking in the dough, this might be a difficult realization: you will owe the government money.
This also might be a good time to remember to raise your rates! Because, remember all that money you spent on marketing yourself (i.e. your website, domain name, email newsletters), subscriptions (i.e. Dropbox, cloud storage, your DAW, and invoice trackers) equipment upgrades and classes you took or books you bought to get better at your craft? What you charge your client gets trickled into these various expenses before YOU actually get paid. Keep track of it all!
How do you do that? Keep a daily record log of what you are doing. Note the date, client you are working with, the project details, the agreed amount of money to be paid for services offered, what you were actually paid (because sometimes there is a middle man that takes a 10% cut, especially for Pay To Play Sites), and the actual date you were paid. This is also a good way to keep track of who hasn't paid you yet. Below is an example of how you could organize this information:
You also need to remember that everything you do work related, is considered an expense. Your internet, phone bill, the space your office takes up in your home, your health insurance premiums, how many miles you drive for work related events or training. So start keeping track of all of your receipts. You'll want these to build what's called a Profit & Loss Statement. This document adds up all of your income and then subtracts all of your expenses to give you a more accurate view of what you earned, and ultimately, what you will be paying taxes on.
The best way to not get hit at the end of the year with a giant tax bill is to set aside about 20-25% of every freelance paycheck you earn into a tax specific savings account. Then, you'll want to pay taxes quarterly to the government to stay on top of what you owe.
Remember, don't panic. Starting your own business is not easy...but it is rewarding. You are a talent AND an entrepreneur and you totally have this. Don't wait to find a good tax guy until the near end of tax season. Start looking early in January. That way when you have all of your 1099 forms and paperwork regarding other bills or interest payments, you are prepared with nothing but time on your side.