Let’s Just Get This Over With

“Few of us ever test our powers of deduction, except when filling out an income tax form.”

— Laurence J. Peter, author

In Issue #

Let’s Just Get This Over With

by Monica Day

I’m going to talk taxes. In six weeks, we file. Or maybe we extend. Either way, it’s time to deal with them – so let’s just get it over with in one column, shall we? I’ll try to make it as quick and painless as possible. But I’m also going to save you a boatload of money. So buckle in.

Just so you know where I stand: I hate taxes. No two ways about it. From the purely bureaucratic nature of the forms and the nitpicky recordkeeping it entails. To the larger issues of funding political conundrums I don’t agree with…or a school system that offers little value to my children. It’s a loathing complicated only by my gratitude for the nuts and bolts transportation, garbage collection and practical matters that make my life work.

The irony that I live in one of the highest-taxing cities in the country – Philadelphia – is not lost on me. I have always appreciated the finely-honed sense of humor of the Universe.

But I have learned – the hard way – that resistance is futile. Not that I’ve been a placard-carrying tax resistor, mind you. But I resist in passive ways. I file extensions…I don’t put aside adequate money throughout the year…and you could not pay me enough to date an IRS agent (well, unless it would result in a significantly lower tax bill…on second thought…not even then…).

So for someone like me, being a freelance copywriter – and self-employed – is a mixed blessing.

On the down side, I must think about tax issues far more than I’d like. Every receipt must be kept and marked “business” or “personal.” I must keep meticulous records of my income and expenses. I must measure the space I use in my home and make some strange calculations about how much I can “write off” for the office space I rent to myself. Occasionally, I envy the paycheck method of tax collection – it seems more humane sometimes to me.

But the upside is also substantial. Many of my day-to-day expenses can be legitimately counted as business expenses. Most of my travel and vacation expenses – deducted. Gifts to my clients and associates, books I would read anyway, magazine subscriptions I maintain for research – as long as they are reasonable – are all deductible. Plus, there are more powerful retirement-saving vehicles for the self-employed. The list goes on and on.

The best way to keep your focus on the upside list – and not get walloped by a big tax bill from an item on the downside list – is to get help. I have come to worship people who can help me make it through this annual genuflection to our government. And I have discovered – through plenty of trial-and-error – that every dollar I spend on tax and bookkeeping assistance is returned to me five-fold in either saved taxes…or increased work productivity.

So if you’re going to make even $3,000 or more in a freelance endeavor this year, and you’ve generally done your own taxes in the past, make this the year you hire an accountant. I stopped preparing my own taxes the year I started my freelance business… and I’ve never looked back. Most accountants do an audit of your prior year’s taxes…and mine found enough money in there to pay for his services twice over! So I was in the black before he even got started on the tax returns due.

Second – do a little research. (We’re writers – we research for our clients all the time – unleash the power of this skill on your own behalf!) On more than one occasion I uncovered a write-off specific to freelance writing that my accountant wasn’t aware of – and saved myself a few more dollars.

Third – do a little pre-planning. Are you transitioning from a salary to freelance? Do you have a spouse whose paycheck will pick up most of the taxes…and your business will simply offset their income with tax-reducing write-offs? If you understand how working for yourself will alter your taxes in advance, you’ll keep better records from the beginning and empower your accountant to shave as much taxable income off as possible (and legal!).

Finally – can’t seem to harp on this enough these days – be organized throughout the year. Preparing to surrender your records to your accountant at tax time shouldn’t take you any more than 2-3 hours if you took a few minutes each week to keep your records in good order. And paying for your taxes should be as simple as writing a check to cover the balance.

It’s easy to overlook these nuances in your first few years in business…but you’ll pay for it. Trust me, paying taxes out of your pocket…rather than having it simply “go missing” from your paycheck, can negatively effect your motivation and drive. So guard yourself from tax depression for the next six weeks…and empower yourself to be a paragon of tax-efficient planning the rest of the year…and you’ll never have to dread April 15th again.

Resource Referral: Four Spaces Left!

We have just four open spaces in the Copy Protégé Mentoring Program and then it will be closed for another three months. If you’d like to participate, please send us your goals, and a sample headline and lead to admin@copyprotege.com. Here’s what some people have said about the program:

"I found this session especially useful…Thanks for your comments, Krista… I don’t know why but I can sense that you are a very compassionate person. There are other coaches who treat it only like a business and I have not gained from them at all. But you really care…I am inspired!" – B.B., China

"What I wanted to mention to you before the day gets underway is how valuable your comments were about the millionaire mindset. That was a great bit of inspiration. Copywriting, it seems, is an individual journey and to be able to share some of the challenges and get some sound feedback makes a huge difference – not only in the overall product, but in the degree you enjoy the work. Thanks again." –P. R., Canada

"I couldn’t believe how obvious the errors in my copy were once you pointed them out. Thank you so much! I feel like my writing has really improved during the session" – L.P., Germany

"Wow! You’re my favorite mentor Monica! Thanks for the copy…you just know what works! And as far as my marketing plan…thank you for kicking me into action. Keep on pushing me, I’ll get there." – D.V., Israel

"I wanted to say I’m very impressed with the CP program. I can tell that my writing has improved a lot–I have a better idea of my target–an improved marketing plan–and inspiration to keep moving towards my goals. I really appreciate that. And you’ve been great to work with." – D.K., Florida

Don’t let this opportunity to make 2008 you year to get ahead pass you by!

Quick Tax Tip: How to Protect Yourself from an Audit

As a freelancer, your risk of an IRS audit is up to 10 times higher than it was when you were someone’s employee. But don’t panic! Your chances of an audit remain very slim. And as long as you’re not taking enormous deductions against a modest income (deducting way more than you’re bringing in), in all likelihood, the IRS isn’t going to come calling.

Nevertheless, you should keep certain documents on hand so you’ll be prepared should you be audited: a copy of your return with 1099’s, bank and brokerage statements, receipts or other proof of payment of business expenses, and records justifying your deduction for a home office.

The IRS can audit you any time within three years after your filing (this period can be extended to six years if you’ve understated income by 25% or more and indefinitely if you don’t file). Don’t discard any records until you’ve checked your state’s laws. Some states can audit your state tax returns for longer than three years… and you’ll need all the same records on the state level as on the federal.

Source: The Writer’s Tax Guide: A Money-saving Manual for Travel Writers and Other Freelancers by Eric Taylor, CPA