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I began organizing my tax documents for the upcoming year in October. By early November, I had already sent my CPA a comprehensive file that outlined both my current business income and expenses (known as a 'profit and loss statement'), along with my projected income and expenses for the last two months of the year.
I also shared with my CPA several other important tax-related figures, including:
The amount I paid in Affordable Care Act health insurance premiums, and the subsidy amounts I claimed
The contributions I made to my HSA, as well as the withdrawals I made for qualified medical expenses
The contributions to my traditional IRA and SEP IRA
The estimated federal and state tax payments I made
I concluded this document with a list of questions, such as:
What is the maximum contribution limit for my SEP IRA this year? (Unlike traditional or Roth IRAs, which have specific dollar caps, SEP IRAs are limited by a percentage of your net self-employment income—which, if your taxes are as complex as mine, may require a CPA to assist with the calculation.)
Can I open a Solo 401(k) in addition to my SEP IRA to contribute more toward my retirement and lower my taxable income? (I suspect the answer is no, but that's the benefit of having a CPA—they can double-check for you.)
Will I need to adjust my fourth-quarter estimated tax payment based on whether my first three payments were over- or under-estimated?
Will I need to return any health insurance subsidy funds, or did I claim the correct amount?
If you’re a freelancer, side hustler, or gig economy worker, it’s not too late to start considering your own taxes—and as Laura Saunders from The Wall Street Journal points out, there are several tax-related tasks to complete before the year's end.
These tasks include:
Setting up a health savings account
Establishing a Solo 401(k)
Increasing your W-2 income withholding (that’s the paycheck from a traditional employer; by raising the tax withheld from your W-2 income, you may be able to reduce the quarterly taxes owed on your freelance earnings)
Saunders also mentions several record-keeping tasks that aren’t strictly required to be completed by December 31, but it’s still wise to take care of them in advance, such as:
Summing up all the income you’ve earned from your various freelance, side hustle, or gig economy jobs (keep in mind, you are required to pay taxes on all this income, even if you don’t receive 1099 forms from each of your individual clients or gig economy employers)
Keeping track of your tax-deductible business expenses
Figuring out depreciation on any assets you use in your freelance business (for instance, a car or a laptop)
I’ll leave you with one final freelance tax tip, straight from my CPA: if you’ve been considering any business-related purchases, whether it’s a new computer, office furniture, or tickets to your industry’s major annual conference, be sure to make those purchases before December 31.
That way, you can count them as a tax deduction for this year—and when you’re a freelancer, every penny you can deduct from your taxes really helps.
