Tax Tips for Freelancers
By Katie Navarra
Tax season is here and Chris Morris, an Arizona-based CPA and MBA specializing in tax accounting for creative entrepreneurs, offers three tips for small businesses and freelancers.
1. Don't leave money on the table
.
Mileage is tax deductible and often forgotten, Morris says. He recommends the MileIQ app, which tracks all your mileage through a smartphone. Each trip can be categorized as personal or business with a simple swipe left or swipe right.
The app allows differentiation between medical miles and charity miles. MileIQ provides IRS-compliant reports for year-end, categorized by the different categories you use. Plus, it's inexpensive at about $5 per month.
"Don’t forget — that expense ($5) is also tax deductible," he adds.
2. Don’t be afraid of audits.
In Morris' opinion, people are too conservative with their expenses, because they are afraid of audits.
"Audits are not personal. It just means number crunchers at the IRS want more information about your business, because their programs popped your return out as an anomaly," he explains.
An audit is not a presumption of guilt. Even with the IRS, it is innocent until proven guilty. At least as of 2016, 35% of audits resulted in no change or the auditee getting money back, according to Morris.
"When you keep good records and expense all your legitimate expenses — you don’t need to be afraid of an audit," he says.
3. Don't wait until tax season to update your books.
It may be too late for this year, but get an early jump on next year's taxes by updating your books more than once a year, including tracking the costs of utilities. Morris recommends using a spreadsheet to track utility expenses monthly.
"Updating the books should never be something that is only done once the calendar turns," he says. "In my opinion, it should be done at least quarterly, and perhaps monthly."
