Now that we are in the midst of tax season, members of the Finance Collective are here to give you tips and tricks on how best to take care of yours taxes this year. This week's tidbit of advice comes Orca Financial and is for all of the freelancers out there:
"With technology, the ability to create your own business is endless whether you are a photographer, coder, model, graphic designer, dancer, tutor, etc... the opportunities are endless. You are a self-starter and a go-getter and live by your craft but you don't often understand the financial and tax implications behind it.
You want to just concentrate on what you are good at and before you even realize it the money is coming in, fast and furious. Now the last thing you want to think about is taxes and cash flow plans etc. But you have no choice. So what are the basics?
Lets start with a 1099, which is a tax document for miscellaneous income; this is where all of your wages for freelancing will be documented for the year, just like a W2 which you may be familiar with. But unlike a W2, no tax deductions will be taken upfront from your wages. The benefit of the 1099 is that you have a little bit more lead room when it comes to planning for your taxes as well as options. #letsgetcreative
Option: Set up your own company, and absorb the 1099's through that company, instead of your individual name.
One option is you can set up your own company, and absorb the 1099's through that company, instead of your individual name. This allows for you as the individual to be paid by your company and elect taking the left over income from the company as the owner in profits. Therefore allowing for a different set of taxes that can be advantageous. To do this you will set up a LLC ( with an S election) or S-Corp and simply have the company's that are paying you, pay your company, from there you will need to work with a financial/tax professional to understand your potential cash flow and how best to manage your taxes from your company. Finally, come tax time it is best to plan ahead again with your financial/tax professional to understand the rules and regulations and the taxes associated with the strategy, often you can save money by putting in this effort and planning ahead.
• Get a separate Business Card (Credit or debit)
• Get QuickBooks and link it with your business card
• Track all expenses that are business related (gas, travel, food) #drinksonyou
• Make a Cash Flow plan (Orca's partners can help you with this)
• Learn about all potential deductions (Orca's partners can help you with this)"
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