How Freelancers Can Organize Their Tax Information

As freelancers, we’re responsible for so much of our professional destinies – and taxes are certainly no exception. The beginning of each year brings with it the task of assembling earnings and sources of possible deductions. This is, in itself, no small feat, especially if income sources tend to vary widely, from private clients to platforms. However, all it takes is a few small organizational changes to enact a stress-free system for each time tax season returns (pun intended).

Software, self, or second party?

Come tax season, the mental association of someone reading over stacks of financial documents and calculating rows of numbers recedes with each passing year. Do you happen to be a math person, and really need to keep expenses at a minimum beyond what you already have to pay in? Then perhaps your preferred approach is to consider it more of a yearly puzzle challenge of sorts for you to do entirely on your own.

That being said, no matter how adept you are with numbers/percentages/all that fun tax stuff, the chances of a little auditing cloud settling over your taxes are greater if you choose the solo route. Some people, then, choose to hire a certified public accountant instead, which can be costly, though often the most secure option if you do the prerequisite research regarding professional reputations, etc.

And finally, there’s the subscribe/purchase your own tax software option. This might be your choice if you aren’t great with figuring out “all things tax” but would still prefer the privacy of completing the data yourself via a streamlined platform. While this might be the most cost-effective approach overall, there have data security issues along the way in the tax software world, so choose your route wisely.

Adopt an attitude of “in advance.”

You know all those times you were rushing around a week or so before taxes were due, trying to find files both on and offline? Sure, PayPal is great about letting you know about all you’ve earned throughout the year, but keeping track of other payments (like direct deposits) can be the very definition of tricky.

Instead, get thee to a spreadsheet, starting a new one each and every January for that year’s earnings.

  • Make a row or a column for each source of income, and update it each and every time you get a payment notification.
  • Keep one copy of the spreadsheet on a physical flash drive, and one as a backup to update online or via a smartphone app.
  • At the end of the year, this forward-thinking will result in an accumulation of earnings data that you can tally within minutes.

Don’t forget physical file folders.

Whether you’ve got a dedicated space for a home office or not, you still should make room for a stack of file trays. Exclusively dedicate one tray to the current year’s tax information (you can get a packet of file folders quite inexpensively to use in the long-term). Put a copy of every work-related expenditure receipt, 1099-MISC form, and invoice from the year in one (or several, depending on the volume) file folders for immediate access.

  • Admittedly, this step is becoming more and more obsolete for the do-it-yourselfers out there, as companies are switching to paper-free 1099-MISC forms and whatnot.
  • This step is still a must if you’ll be meeting with an accountant for tax preparation.

Online organization options…

There’s no denying that virtual file folders save lots of space and can be accessed with greater immediacy.

  • Using a designated-for-work email account, label any payment notices by type and year and archive them into folders.
  • As a backup, download any attachments to your desktop, rename them to also reflect the source and year, put them into respective folders, and save them to a flash drive/upload them to an online drive.
  • For any physical receipts you incur, take pictures of them with your phone (or use a scanner), label them, and redistribute them to their respective online folder sources.

Multitask with mindfulness.

Even with all of the suggestions provided here, in the end, formulating an organizational system for tax files is a very personal sort of endeavor. Maybe you work better with less folders, less labels, in a more centralized sort of format. The key is, though, to keep those file sources together as they come in, no matter how many other projects are dividing your attention concurrently. Shift your focus for the sake of streamlining, and you’re setting yourself on a more solid path of success!

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