The other day, I was chatting with a coworker who has been freelancing for 10 years. Like the 20-something I am, learning as I go, I word vomited something like the following at her: “How do you handle taxes as a freelancer? Do you itemize?”
She now handles taxes differently, being married and having “dependents” and all, but when she started, she tried the whole itemizing thing. How’d she handle it? With two things, she said: receipts and an Excel sheet.
With the year winding down, I’ve recently been thinking about filing taxes for the first time in my freelancing life (hey, you can’t say I’m not prepared for something!). I wondered if itemizing deductions would be right for me—and more so, how I would figure WHAT I can itemize as the artistic/freelancer/self-employed person that I am.
If you’re an artistic/freelancer/self-employed person as well, you may be asking yourself the same question. If not now, then come April of next year. Of course, it’s easier to answer this now than later. So, if you’re trying to figure this out too, consider the system I’ve put in place for myself.
Step 1: Save Your Receipts
Receipts can be annoying. I always say no when asked if I want one. I just don’t like the extra paperwork. But since we want to create healthy habits, and figure out what we can itemize, it’s time to become something we hate: a receipt hoarder.
Right now, my pockets are full. Not with money, sadly, but with receipts. This is what I had to do in order to begin changing my financial habits. After getting about a drawer full of receipts, I realized the hardest part about all this is how to store your receipts. (I don’t recommend my pocket/drawer method.)
The most space-saving way is to scan them. But that can be time-consuming. Instead, go with a nice little Trapper Keeper or binder. If not then, then just remember that your ultimate goal is to store them all together in one place. That way, you won’t wake up with a receipt stuck to your sheets.
Step 2: Creating Your Excel Sheet
Websites (like ours, of course) can help you figure out a budget and stay on top of your financial game; however, there’s just something magical about making your own Excel spreadsheet. Start by dividing each month in its own separate sheet. Then, go through your receipts to catalog ones that you may be able to itemize.
Once I have the possible miscellaneous receipts together, I place them in their own column with the date. Then, I add them up at the end of each month. I just started, so there’s not a lot on it. Still, with networking meals, doctor visits, haircuts, any class I take to be a better writer, anything I consider work supplies (like my online portfolio), there are a lot of things that could go on my list.
Step 3: Stay On Top Of Your List
Once you start writing these things down, you may realize that you don’t have enough expenses for itemizing to make sense. And that’s OK. It’s kind of the point of the exercise. You might also want to adjust your spending. I am getting inclined to take more classes and consider focusing more of my expenses towards my career. Who knows?
All I know is that it takes effort to sit down and organize your monthly spending, but once you do it, it feels good. And I mean, you only have to do it 12 times a year—and that’s not so bad. Right?
I hate growing up.
How do you keep track of your expenses? Share your tips in the comments.
This document was prepared for informational purposes only and is not meant to be tax or legal advice. Please see your tax professional for additional guidance.
(Photo: William Fish)