Photo credit: Jasper Greek Golangco

Disclaimer: I am not an accountant. The closest I can come to be considering one is from taking one graduate college course on accounting and using QuickBooks. This advice comes from my own experience.

Some writers start a freelance writing business with little thought to the business part. That’s a small part of why I thought I’d never go into business myself. I didn’t know if I could figure out the admin part of the career beyond invoicing and getting paid. Then there’s taxes (shudder).

Some of the companies I’ve freelanced for took care of the taxes. Most didn’t. So it was my responsibility as a US citizen with her own business to take care of my contribution to a teeny part of the government’s budget. If nothing else, follow the golden rule and you’ll be … well … golden. For the most part.

Golden rule: Have extra money in your business account so you can pay your taxes.

I pay quarterly taxes. In IRS speak: 1040ES (1040 estimated income form). Every quarter, I wince my way to EFTPS.gov and take care of the payment. Better to do it quarterly than to write a big check at the end of the year. Here is how I manage my taxes:

1. Obtain an Employer ID number (EIN): See this EIN chart to see if you need one.
2. Save income for taxes: I make sure I always have cash on hand to pay those taxes.
3. Figure out tax rate: IRS.gov states: “The self-employment tax rate is 15.3%. The rate consists of two parts: 12.4% for social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance).”
4. Pay quarterly taxes by April 15 (1st quarter), June 15 (2nd quarter), September 15 (3rd quarter) and January 15 (4th quarter). I pay mine on EFTPS.gov. I look at my reports in QuickBooks to see how much I made for X quarter. I subtract expenses from that. And then apply the tax rate to the total and pay that amount.
5. Record all expenses and keep the receipts: Do you subscribe to Writer’s Digest or buy 2009 Writer’s Market? Save those receipts. They contribute to your writing business. Your home office, supplies, computer, phone and all that also count as expenses. Accounting treats some items differently, so check with your finance pro.
6. Track payments to subcontractors: This typically doesn’t apply to me — I prefer to keep it a one-person business — but I some of you may subcontract work to others. If you pay them over $600 in a year, give them Form 1099-Misc.
7. Check state income tax requirements: Thank you, Texas, for making this easy. We don’t have state income taxes in Texas, but I had to pay income taxes to New York. So not only do you need to know your resident state, but also the income tax requirements of states where you have clients. Your finance pro can help with this.

Many user-friendly applications have come out that are easier to figure out than QuickBooks. The key is to find one that lets you create invoices, record payment and enter expenses. The rest are just extras and it’s up to you whether you want them or not. I also use reconcile and reporting features.

Track everything. What you pay. What you buy. Your invoices. Your received payments. Better to record everything and let the accountant determine what qualifies than to miss a deduction or other opportunity.

What other tax management tips do you have?

• Surviving Spring Break Week with Kids: My debut on WebWorkerDaily. Excited to officially join the community. Or would you rather read about dealing with taxes?
• 15 Photoshop Tutorials for Creating Product Advertisements: Designers amaze me.
• Tweetoclock: Find out the best time to communicate with a twitterer — when s/he is most likely to respond. Personally, I check my replies through search.twitter.com and try to catch them all, so tweet me at your convenience. Of course, some tweets may be general and not to anyone specific — Tweetoclock can help you make sure you reach certain folks at the right time in hopes they’ll notice you.
• Save the Words: Dictionaries drop hundreds of words every year. I adopted logarithmotechny: the art of calculating logarithms [Link: Beth Kanter].
• Free E-Books for Read an E-Book Week: Lists sites that have free e-books all the time. Still prefer my books printed not on a reader.
• Keep Your Salad Fresh: I love the advice to avoid cliches. I’m editing a book telling a guy’s fascinating life story, which contains many cliches. Trying to cut down.
• 25 Tax Resources for Freelance Writers: Ugh, don’t want to think about taxes… but think we must [Link: Anne Wayman].

And for fun because we’re allowed…

• Torah in Haiku: Now that’s something I can read! [Link: Rebecca's Pocket]
• Down for Everyone or Just Me? Sometimes cached pages trick us or a slow internet.
• Dallas Diamonds football team in the Independent Women’s Football League: Great folks!
• Three Cups of Tea: Amazing story about a man who helps build secular schools in Afghanistan and Pakistan.

I’ve gotten so much mail from EFTPS (Electronic Federal Tax Payment System — it must be an unwritten rule that everything government-named must be abbreviated — I worked in the federal government once upon a time), the IRS‘ (Internal Revenue Service) online payment service. Part of it is my fault and part of it is a usability problem.

Just now, I was trying to confirm the URL of the Web site and had the letters next to the keyboard. Either my vision has drastically changed in the few weeks since my last vision check up or the IRS has forgotten to add that bit of info to its letters.

The thick envelope also came with brochures and I’m guess Web address is there, but I already had copies and threw them away. Shouldn’t it be on the letterhead somewhere? The phone number shows up plenty.

When I first signed up for EFTPS, I used a different bank account than the one I need to use now. Following instructions on the Web site, I attempted to change the bank account number. The action prompted the system to send me a packet of information. I checked the site again later to see if it took the new bank account (as it said it would), no change.
(more…)