Indianapolis Web Design Blog

One of the most important issues when starting a freelance business is taxes. You’re out there working for yourself (no more workin’ for the “man”), and things are going well. You’re getting some new clients, your work is creative and loved by all, Your computer is ticking along to the pulse of capitalism like a Rolex – and along comes the first tax season. All of a sudden things get a little scary.

Here are 5 of the things that I wish I knew about taxes when starting my freelance business:

1. Should you attempt to file your taxes yourself?
2. How much money should you put aside for taxes?
3. What are “Estimated Taxes,” and how much should you pay?
4. What kinds of things can you claim as a business expenses?
5. How do you avoid an audit?

Part 1:
Should you attempt to file your taxes yourself?
Since most freelancers and entrepreneurs are “do-it-yourself-ers” by definition, doing my own taxes seemed like a natural choice for me. I wanted to take a crack at it. After all, why not? I had always done my own taxes with no trouble at all. Well, after about 4 hours of tracking down forms online, instructions, calculations, and “Schedule-C’s“, I was really no closer to completing my own taxes. The worst part of it was that I had no confidence in my accuracy. It was that complex.

It’s about money
Now, older and only slightly wiser, the largest argument I have against doing my own taxes is an economical one. The hours I’d spend getting my tax return to a point where I imagined it to be accurate would be better spent doing what I do best, designing websites. I was actually throwing away money by doing them myself.

Let’s say that you have an hourly rate of $100/hr providing services to your clients. If doing your tax returns takes 5 hours, then you have effectively spent $500 of your time. Subtract a hypothetical cost of tax preparation, $200, that leaves you $300 in the hole. “No big deal,” you may say, if you don’t have anything else to do with that time. Trust me, you probably do. Go spend it with your family!

Who to take your taxes to?
At first I went to the kind of tax prep companies you hear about in advertisements, places like H&R Block. The treatment was impersonal enough to motivate me to look up a real CPA… who turned out to be no more expensive. Now, I spend around $150 each year for hassle-free tax preparation.

This article is not intended to be specific tax advice. For tax advice, go consult a professional.

Read Part 2:
How Much Money Should You Put Aside For Taxes?

This entry was posted on Monday, February 5th, 2007 at 5:37 pm and is filed under Freelance. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.