I started preparing for next year’s taxes in October of this year. By the first week of November, I sent my CPA a prepared document listing my current business income and expenses (aka a “profit and loss statement”) as well as my anticipated income and expenses for the remaining two months of the year.
I also provided my CPA with additional tax-relevant numbers, including:
The money I paid in Affordable Care Act health insurance premiums, and the subsidy dollars claimed
The money I contributed to my HSA, and the money I withdrew from my HSA for qualified medical expenses
The money I contributed to my traditional IRA and SEP IRA
My estimated federal and state tax payments
I closed this document with a list of questions, including:
What is the maximum amount of money I can contribute to my SEP IRA this year? (Unlike a traditional or Roth IRA, which are capped at specific dollar amounts, SEP IRAs are capped at a percentage of your net self-employment income—which, when your taxes are as complicated as mine, might require a CPA’s assistance to help you calculate.)
Is it possible to open a Solo 401(k) in addition to my SEP IRA, to funnel more money towards retirement and reduce my taxable income? (I am pretty sure the answer is no, but the good thing about having a CPA is that you can double-check.)
Will I need to adjust my fourth-quarter estimated tax payment to compensate for over- or under-estimating my first three payments?
Will I need to pay back any health insurance subsidy dollars, or did I claim the right amount?
If you’re a freelancer, side hustler, or gig economy worker, it’s not too late to start thinking about your own taxes—and, as Laura Saunders at The Wall Street Journal reminds us, there are a handful of tax-related tasks that need to be completed before the end of the year.
These to-dos include:
Opening a health savings account
Opening a Solo 401(k)
Increasing your withholding on your W-2 income (that’s the paycheck you get from a traditional employer; if you increase the amount of tax you pay on your W-2 income, you might not have to pay as much quarterly tax on your freelance income)
Saunders also lists some record-keeping tasks that don’t necessarily need to be completed by December 31, but are still good to complete in advance, including:
Tallying up all of the income you’ve received from your various freelance/side hustle/gig economy sources (remember, you need to pay taxes on all of this income, even if you don’t receive 1099 forms from each of your individual clients or gig economy employers)
Tracking your tax-deductible business expenses
Calculating depreciation on any assets you use for your freelance business (like a car, or a laptop)
I’ll leave you with one more freelance tax-related tip, directly from my CPA: if you’ve been thinking about making a business-related purchase, whether it’s a new computer, new furniture for your home office, or tickets to your industry’s big annual conference, get that money spent before December 31.
That way, it counts as a tax deduction for this year—and when you’re a freelancer, every penny you can write off your taxes counts.