Wednesday, April 8, 2009

A Lesson in Finance

I took my taxes to H&R Block today. To be honest 2008’s taxes weren’t going to be that difficult, except for the partial-year non-resident status I managed to get in the state of Indiana... who knows! Why I really went was to see if they could squeeze any more money out for me to get back and to figure out what the heck I do now in 2009 as a full-time freelancer.

Now with several well-paying gigs in place I’ve been in love with the whole freelancer lifestyle. I still love it after my visit to the tax professionals, I’m just a little more realistic about the whole thing.

Apparently, if all your income comes from freelance work it is wisest to pay estimated taxes quarterly. Otherwise you are left paying one large lump sum at the end of the year and the IRS penalizes you for not paying earlier. UGH.

OK so I was willing to make the payments, but when the tax professional quoted a number I almost fell out of my chair. Thousands of dollars each quarter? No, seriously? Thousands? Not good. And the worst part is she couldn’t quote an exact price I should pay, because my true taxable income this year will be a little uncertain as a freelancer, plus who knows what kind of deductions I can take.

As hard as the news was to hear, I’m glad I went and figure it out. Sure, it is going to sting now to watch that money leave my account. But a little now will hurt a lot less than one huge lump sum and a penalty for 2009! I’ve got to pay by April 15, June 15, September 15, and December 15.

One interesting suggestion my tax professional had, which might work for some of you freelancers, was to get a part-time job that will actually give you a W-2 at the end of the year. When filling out all the paperwork for that job have the vast majority of the paycheck deducted and sent to the government. That way you are paying and can avoid quarterly taxes, and you also can sidestep the huge payment at year’s end. Good for some, not ideal for me who doesn’t have time to take on a part-time job.

Bottom line: Thanks H&R BLock. Bummer I need to pay up by April 15th for the first quarterly payment.

What do you other freelancers do for your taxes?


  1. My brother is a full-time freelancer, as well. He was whopped with taxes this year too (from 4th qtr of last year), as well as 1st qtr for this year. It takes a little getting used to, having the $ saved for those qtrly dues! I'm sure this is probably something you were told, or know already, but take advantage of deductions...even mileage to that local coffee shop or any other expenses you incur as a result of your business. My brother actually keeps track of a lot of this in spreadsheets. A pain in the butt, yes, but it pays off come tax time. If you do have questions, let me know...I can ask him. He also has an accountant he works with throughout the year...

  2. Cool! Thanks for the info. The tax lady gave me a mileage log to use and walked me through all the possible deductions. (Staples, stamps, pens, notebooks, printer ink, hotels, internet connection, phone bill, etc...) It's amazing all the things you can deduct.