Here are some tips and strategies for thinking about your taxes. There are special circumstances that apply to freelance writers and other creative professionals, so I will highlight what you need to know to prepare your taxes and to avoid IRS investigations.
First, let me start with some fabulously great news. Being self-employed is quite possibly one of the best tax strategies available today. Other good tax strategies include being a landlord and being an investor. All three strategies have one thing in common: you are in full control of your tax situation, and you can reduce current income by any losses you have from freelancing, renting out property, or investing.
Second, let me tell you that the IRS is fully aware of the tax benefits of being self-employed. They are on the lookout for individuals who (1) have high wages, and a correspondingly high business loss, or (2) have business losses year after year. If you are in one of these situations, you need to start thinking about how to protect yourself in case the IRS audits or "examines" your tax return. We'll discuss that later on.
The basic tax planning strategy goes like this: reduce your taxable income, shift taxable income into nontaxable income, take advantage of tax credits, and pay the right amount of estimated taxes. Being a freelance writer immediately puts you in full control of your taxable income, which means that you can fully control how much taxes you pay. Not to be overlooked are special taxes you get to pay for being self-employed. We'll discuss Self-Employment Taxes and its impact on your tax withholding or estimated tax payments.
Step 1: Getting Organized
Step 2: Calculating Home Office & Depreciation
Step 3: Reporting Your Net Profit & Paying Your Taxes
Step 4: Much Ado About Nothing – or, how to protect your business losses
Step 5: Incorporating Your Business and Stategies to Protect Your Business Losses
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