10 Oct A 90-Day Plan to Get On Top of Your Freelance Finances (Once and For All!)
Being self-employed is not for the faint of heart, or for those who are faint about their finances. Sadly, studies have shown time and again that a key contributor to freelance business failure is a lack of financial organization. Fortunately, if you’re proactive, you can get on top of your finances and be successful over the long-term. To help you get started, here’s a 90-day plan to get your freelance business on track before the end of the year. If you stick to the plan each month, you’ll be able to move forward with confidence in the new year and in the coming tax season:
October: First 31 Days
- Perform an overall financial checkup. This is the time to assess the current financial situation of your business and think about your plan for the future. Also to consider: your cash flow, your income and expenses, as well as your tax liabilities. Plus, if you’re not already using a reliable tracking system to monitor your finances, you’ll want to find and implement one now, too.
- Evaluate your business entity. Few freelance business review their choice of business entity on a regular basis, yet it’s important to do so because a different business structure may give you additional tax advantages. If you’re uncertain about which business entity structure is right for you, reach out to a tax professional for help.
November: Days 32 to 62
- Check your tax withholding. In addition to the estimated taxes you owe as a self-employed individual, if you are also employed and receive a W-2, check your level of tax withholding to make sure that you won’t have an unexpected tax bill next April.
- Get prepared for tax season. If you’re really serious about tackling your finances (and you should be!), on Thanksgiving weekend, take a break from the turkey and spend an hour or two to save your sanity by starting to pull together your receipts and the other documentation you’ll need to file your taxes. You could even do it while you’re watching the football game. Taking control of your tax preparation now, means you’ll be able to flag any issues, replace missing documents and get your taxes filed early—for a change!
December: Days 63 to 90
- Get up to date on estimated tax payments. If you haven’t been making estimated tax payments all year, or you’ve paid less than you owe, consider this your moment of reckoning. Try to make up the shortfall now instead of waiting until your next tax payment so you can avoid (or at least reduce) penalties. If you need assistance handling delinquent taxes or tax underpayments, consulting a tax professional who specializes in these matters now should be part of your plan.
- Make the most of retirement account tax savings. Freelancers and the self-employed need to be especially vigilant about funding their retirement savings. Even in December, it’s not too late to increase contributions to your retirement account—or start one if you haven’t already. Traditional retirement accounts like an individual retirement account (IRA) still offer some of the best tax savings. Contributions reduce taxable income at the time that you make them, and you don’t pay taxes until you take the money out at retirement. The 2016 contribution limits for an IRA are $5,500 for an IRA ($6,500 for those 50 years of age and older). Make it your goal to top up your retirement contributions before the January 15, 2017 deadline to reduce your taxable income on your 2106 tax return.
- Leverage state and local sales tax deductions. If you itemize deductions, it may be advantageous from a tax perspective to accelerate your state and local tax payments to cover any expected liability for the year. How does this work? If you pay your fourth state and/or estimated tax payment, normally due January 15, in December, this will increase your itemized deductions and potentially reduce your federal tax liability for the year.
That’s it—by being proactive now, and following the plan we’ve laid out here, you can get on top of your freelance finances in just 90 days and head off any serious financial issues, once and for all.