Put down the leftover Hallowe’en candy and chew on this instead, because your future tax bill depends on it: Acting now to lower your tax bill can significantly up your money-saving potential by the time tax season rolls around. The key words are, of course, acting now—because after December 31, 2015, the opportunity to create a better tax-paying future for you and your freelance business is gone, at least for the current tax filing season. So don’t just sit there! Here’s how you can take advantage of your tax planning opportunity and create a happier tax-paying future:
Check the pulse of your freelance business.
First off, tax planning is really not supposed to be torturous. The fact is, done well, tax planning allows you to get a pulse on your business now, to think about what you want to achieve in the future, and to take steps to reduce the amount of tax you will owe come April 15 (actually, in 2016 the individual tax deadline will be April 18).
Shape the future of your freelancing.
If you’re a die-hard multi-tasker, you’ll love tax planning even more if you use it as a dual-purpose opportunity to look not only at your taxes, but at your overall business as well. By reviewing your income and expenses, considering the tax (dis)advantages of the type of entity you operate (i.e. LLC vs. corporation vs. sole proprietorship, etc.) and looking at any tax deductible investments you should make to benefit your business (like buying that new laptop or pricey software package), you will also be working toward your 2016 strategic business plan.
Be in the know—so you can act accordingly.
Tax planning is like holding a mirror up to your financial situation—so it’s easy to understand why people put it off. But you can only hide from the truth (and the IRS) for so long—and as a business owner (and a bona fide grown-up) the sooner you take responsibility the better. Plus, wouldn’t you rather be in the know about your own finances and how much tax you owe so you can avoid a nasty surprise in April?
Get on an even keel with Uncle Sam.
If your relationship with the IRS is dysfunctional or even just a little bit out of whack—now is the time to acknowledge it and take steps to fix it. Haven’t paid taxes in a while? Never made your estimated payments this year? Paid too much tax last year? Not sure how much tax you’ll owe in April? Get clued-in to how much tax you’ll owe before the end of the year and make a plan to even things out, especially if your taxes are off-kilter from previous years. If you’re feeling uneasy about tackling this alone, trust your gut and get professional help from a CPA—any fees you pay will be well-worth it (note that professional fees are tax deductible).
Dust off your shoeboxes—or (preferably) open your spreadsheets.
If you actually keep your business receipts in a shoebox rather than a spreadsheet, then tax planning time is going to be a nightmare for you—just kidding—it will just take a little more time to get organized. (Although you might use the opportunity to start using an electronic spreadsheet of some kind.) An extra tax planning bonus is that it gives you a head start on preparing to file your taxes, since you’ll be digging into your tax information and organizing it in the process.
Craft your collections strategy.
Deadbeat clients? You’re not alone! However, when it comes to collecting late payments, from a tax-planning perspective you may want to halt your (polite) harassment of non-paying customers depending on whether your year has been an especially good one—or whether you really could use the cash. If netting delinquent payments now will increase the amount of tax you pay, you may want to let your collections slide until 2016. If reeling in all of the money you’re owed won’t increase your taxes (or will allow you to pay the tax you owe) then tax planning should give you the impetus to put the hammer down on your collections strategy.
Look after your financial future.
Tax planning is the surefire way to optimize your future tax situation—and a good reminder to fund your retirement. If you haven’t started saving for retirement, give yourself an early holiday gift and start now. There are many different investment options to fuel your financial future—just be sure you choose a qualifying plan and make contributions before December 3, so you can claim a tax deduction on this year’s taxes.
Act now—and be happy today, tomorrow…and on April 15.
If you’re feeling intimidated by the whole concept of tax planning, don’t be. Focus instead on the wide-open window of opportunity you have to clearly see your tax situation and make you and your business better off for the coming tax season and beyond.
Jonathan Medows is a certified public accountant licensed in New York, New Jersey, Maryland, and Pennsylvania. He is also a recognized expert in taxation for freelancers and the self-employed—often tapped for his expert knowledge and perspective on self-employment taxation by national and regional publications such as The New York Post, BusinessWeek, Forbes taxation blog, WebCPA, CPA Practice Advisor, and others. You can read some of Jonathan’s press coverage here.
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