The biggest piece of advice I can give you is to find a good accountant to sit down with and have them work out what your estimated quarterly payments should be. You don't need to set up an LLC, you should be fine as a sole proprietor.
A good accountant is going to help make sure you are getting all the write offs/business losses that you can.
Start tracking your mileage. Buy a log and keep it in your car, the mileage can add up quickly and it is a great deduction when you are self employed.
Save your receipts, lots of purchases can now count as business expenses. It's hard to say specifically which ones will apply in your instance, that's why it's important to have a CPA who understands your type of work.
ND is more professional than I am, by miles. But he has a whole business, and employees, and equipment, and travel, which is far more complicated than me editing on the couch.
What I'm saying is, listen to him.
The business started as me just freelancing, and one of my biggest lessons has been the value of a CPA that I trust. It's so much better to start with a CPA when you taxes are pretty simple so that they can know how you work as your business grows.
There is also the fact that if you do get audited the IRS can look back up to 7 years, so it makes sense to have a long track record with a CPA who will be with you if that ever happens, and who will know your taxes going back quite a few years.
Thanks! I will look for a CPA.
You might be able to get some good information from the SBA:
[link]
Save your receipts, lots of purchases can now count as business expenses.
I was just thinking about this, as I bought $20 worth of bandaids and such.
Thanks for the link, Dana!
smonster, I consulted with an accountant the first year just to see what I should consider deducting and she did my taxes for the first year. Then, I have basically copied what she did in the years since. I have very few legit expenses/deductions with what I do, so actually (except for ACA subsidies) my taxes are pretty simple. I liked my acct but she was pricey for my purposes.
Even though I have Money software, I find it is easier to track business stuff separately on top of that in Excel. It's just more flexible and gives me a better idea if I'm on target for taxes and makes tax prep much easier. I do a quarterly review/update throughout the year. Remember, even if you use an acct, you still have to track everything to report it to them so you need to have a good system yourself. And it also prevents you having to have receipts for every little thing. See the $75 rule at the link below.
Note, in most cases (generally unless fraud or bad debt is involved), the IRS has only 3 years to audit you. This link has good info on IRS time limits and basic record keeping: [link]
Paying quarterly is easy online, it is estimating what my income is going to be for the year that is difficult for me. I've had high tax bills and high refunds just because my income wasn't where I thought it would be. If your income is going to be variable, try to get estimates for multiple ranges from an acct so you can benchmark payments for different annual income amounts going forward. I start on the high end with the April payment and then adjust as I go. It is not a problem to have uneven quarterlies if payments are frontloaded in the year.
I've found having a separate credit card for business expenses helpful. That way all those charges can just get tagged business expense and dumped into Excel from Money (or Quicken, Mint, etc. I imagine). Also, depending on what card you get, it may be useful to pay your quarterlies with--I discovered accidentally (when cash flow forced me to charge my taxes last year) that I actually get more $$ value in Virgin airfare than the 1.85% fee they take for charging. Then I deduct the fee as a business expense.
If you like, I can send you my basic spreadsheet as a template. It has a list of basic deduction categories and what items you might consider deducting for them.
One more note re taxes for the self-employed, especially simple/small cases. If at all possible, avoid depreciation. It requires extra forms and then you are stuck with that system for (usually) five years. I think tax preparers often default to it since it makes taxes look more complicated than they have to be and many charge by the form.
In my case, if I use a preparer, taking depreciation costs me more than not taking it since the actual tax benefit is less than cost of the extra form. Ridiculous.
Basically, if you are profitable and qualify for a home office, the full purchase price of most items you might depreciate (laptop, printer, software) can be deducted in one pop on your Schedule C via the Section 179 deduction. This page has a good summary of the relevant info: [link]
If at all possible, avoid depreciation. It requires extra forms and then you are stuck with that system for (usually) five years. I think tax preparers often default to it since it makes taxes look more complicated than they have to be and many charge by the form.
The depreciation this is tricky. It's actually changed a few things over the past few years. I believe for 2015 the cutoff is items over $3000, but in 2014 the IRS set the limit at $500 which was crazy. This is part of the reason I say to use a CPA, the rules are such a moving target that what was good one year may not be the next.
The tricky thing about the audit rule is that they can choose to look at things up to 3 years old, but as part of that audit they can look for supporting facts easier that year. There is also no limit if they suspect fraud.
