The year is winding down and once the holidays are over, tax season is upon us. As a freelancer, there are certain things you should be thinking about before 2011 is over to set yourself up for some tax benefits in 2012.

We’ll delve into a couple of timely tips, and point you in the direction of a few handy articles to find out more!

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If you work with clients based in the U.S, you’ve probably received a Form 1099-MISC. That’s the form that a business uses to report money paid to contractors, as well as to report other income. You should receive a copy of the form from your clients by January 31 of each year. Your clients who issue Form 1099s also send a copy to the IRS, letting them know how much income you really ought to be reporting on your taxes.

But this system is notoriously full of problems. Maybe you didn’t actually receive your copy of the form. Or maybe your client reported a number to the IRS that had nothing to do with what they paid you this year. Or maybe your client went out of business before they could even get around to filing their taxes. Whatever the circumstances, if you’re a U.S. taxpayer, you need to get that paperwork straightened out so that the IRS doesn’t hassle you about incorrect numbers.
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After doing my taxes this year, I’m firmly of the opinion that every freelancer needs a debit or credit card just for business expenses. A separate checking account for your freelancing business — and the debit card that comes with it — is ideal, but for freelancers who aren’t ready to do that, having a credit card that is used exclusively for office supplies, business lunches and all those other expenses you can write off on your taxes can pay off.

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Permit me to start this article with a confession: It took me more than a decade to make friends with accounting.

Not that accounting didn’t try to become my friend. It kept coming around my freelance business saying that I needed to deal with it. After all, I did need to know how much profit or loss I was generating so that I file a tax return.

So, I hired a bookkeeper to generate quarterly financial reports. Then, when tax time rolled around, she generated a year-end report for me and my tax accountant.

When it came to accounting avoidance, this system was superb.  But there was a problem. The bookkeeper’s reports were seldom correct. I had to go through them, line by line, to see which income and expense items had been incorrectly logged or omitted. Little did I know, but my accounting education had begun.

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Photo by yorkd.

A few years ago, I did a couple of projects under the table for a local company. They paid me in cash, with a quiet understanding that they didn’t plan to issue me a 1099 and I didn’t plan on declaring that income.

I don’t work that way anymore, but I know the appeal. There are a lot of negatives to such an arrangement — which led me to make sure my income taxes actually reflect my income — and it’s worth giving them some consideration before going one way or the other for cash-only arrangements.

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Most freelancers automatically set up business as sole proprietors. In most countries, running a sole proprietorship is as simple as hanging out your shingle — the government only cares whether you pay your taxes on time. Just because operating as a sole proprietor — also known as a sole trader in some parts of the world — is the easiest option, however, doesn’t mean that it’s the best. For some freelancers, making the switch to a corporation or another business structure can offer some benefits.

If you just automatically moved into running your freelance business as a sole proprietor, there are a couple of questions worth asking yourself. Depending on the answers you may find that incorporation makes sense for your business.

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Tax time can be especially stressful for freelancers: despite paying estimated tax payments throughout the year, it’s rare that a freelancer doesn’t still have to come up with some money for April 15 — or come up with a long enough list of deductions.

There are quite a few deductions available to freelancers that may not seem obvious when you first sit down with all those 1099s and receipts. But as long as you have the right documentation, you can write off plenty of deductions you may never have thought of.

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I recently concluded a series of articles on New Year’s Planning. And here we are, in the New Year, and I have it on good authority that some of you still haven’t created your 2009 client acquisition plan.

I’m also hearing that there are some freelancers who have yet to do an annual budget.

We’ll start with client acquisition. I’ve created a free Excel application that will allow you to track your efforts. Download the 10 Business-Building Tools Tracker file and open it in Excel. Since it’s in Read-Only format, save the file under a different filename so you can work with it.

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Since we’re closing in on 2009, it’s time to start doing some New Year’s Planning.

The first item on your agenda should be something that we all love to deal with – taxes. If you haven’t done so by now, make an appointment with your tax accountant so you can get ready for April 15, or whatever the magic day is in your country.

Here’s what to take to your accountant:

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In this article, I’m going to talk about how you can hold yourself accountable on a monthly basis. The first two articles in this series covered:

1. Daily accountability
2. Weekly accountability

The focus of the first two articles was on things that you can do with words – evaluating your day and your week. When we move up to the monthly level, the focus shifts to numbers. Which means that it’s time to talk about accounting software and your business. Yes, I know that this is a sore spot for many creatives. It was for me for many years, but I got over it.

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Handling the legal aspects of doing business has got to be the most dreaded part of freelancing. Most of us have very little knowledge in this field without taking the time to do some research, and even then it can be confusing and frustrating.

Of course, this isn’t one of the core functions of your freelance business, and it’s easy to see any time spent on legal issues as a loss in terms of available working hours. For this reason it’s good to take advantage of the legal resources that are available to freelancers.

In this post we’ll take a look at a number of resources, both online and off, that may be able to make your life easier and help you to achieve more productivity while protecting the legality of your business. Feel free to add your own favorites in the comments.

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Photo by Ella's Dad.

Once you have left the land of COLA raises, paid sick days, and employer-matched 401Ks, not only do you need to be the writer/programmer/web designer for your business, you also need to be your own CFO.

Here are some absolutely necessary components for your business (and life) financial portfolio:

1. You need insurance. In addition to car and home insurance, you must also now fund life, health, and disability insurance. Without these critical coverages, not only could you be swamped with debt brought on by an unforeseen medical situation, but your business could lose its most important asset—you!

2. You need to pay your taxes. Religiously. As soon as income hits your mailbox or PayPal account, it is imperative that you take 30% off the top and tuck it securely away in a separate (interest-bearing) savings account. This money will then be ready to pay your monthly, quarterly, or annual IRS bill, in full and on time. Continue Reading