While Shakespeare’s Caesar should have heeded the soothsayer’s warning regarding the Ides of March, the rest of us have a different “ides” to contend with: the Ides of April. Yes, the taxman cometh; and if you’re a freelance graphic designer you should take care to heed the following tax tips, lest you befall a fate nearly as bad as Caesar’s: overpaying on your taxes. The following five tax tips for graphic designers will help you keep as much of your hard-earned money as legally possible, and keep Uncle Sam’s evil twin Uncle IRS at bay.
1. Invest in accounting
Many freelance graphic designers find accounting to be a bore – and it is, until it’s time to do your taxes. Invest an hour each week to maintain accounting software. You don’t have to go full-blown with the latest and greatest (and confusing) version of Quickbooks; a simple program that tracks your outgoing and incoming finances is all you really need. When it’s time to do your taxes, you can easily view your tax-deductible expenses, and the greatest benefit is that you’ll probably have hundreds or even thousands of dollars in deductions you would have otherwise forgotten about.
2. Keep receipts
I know keeping receipts is a royal pain, and they don’t really do you much good stuffed in a shoebox. I recommend the Shoeboxed service, which lets you mail in receipts to be digitized and categorized by the company’s staff. Shoeboxed also imports into popular accounting software. When you have receipts, you can confidently take deductions knowing that you have proof if you’re ever audited.
3. Pay estimated taxes
You might not have to charge your clients sales tax, but you can believe that every dollar you earn is subject to income tax and self-employment tax. And if you’re successful, you will owe money. The best way to protect yourself from a good bank account pillaging is to anticipate your tax in the first place. You can either pay estimated taxes every quarter; or, you can set up a separate bank account and place your estimated taxes in it. Either way, you won’t take a large hit come April 15.
4. Know your deductions and credits
Your home office, medical insurance, medical expenses, work-related travel, software and equipment, employee benefits, and retirement savings all count as deductions. I can’t cover every single deduction available to you here, but do your research so you’re not slighted. Moreover, make sure you understand the difference between deductions and credits, and take advantage of any credits available to you.
5. Hire a professional
I used to do my taxes myself, but after my business grew and taxes became more complicated, I decided to hire a CPA. She is independent, which means she takes more time with my taxes than, say, a major corporate accounting firm would. The first year I did this, she saved me more than $2,500 – well worth her $60 tax preparation fee. The best part of hiring a tax professional is peace of mind knowing your taxes are properly prepared and will stand up to an audit – and if you do get questioned, your tax preparer will handle the dirty work.