Money Matters: Navigating Small Business Taxes
In this summer 2021 segment, Brew’s personal finance writer Ryan Lasker dives into our inbox to answer your personal finance questions. Submit your money issues here.
I’m looking to start a freelance graphic design company but don’t know where to start, especially when it comes to taxes. How do I know which items can be written off and how do I track them? —Haley
Before accepting clients, you will need to start a legal business, which is important in part because your structure determines how you are taxed. Freelancers often open LLCs, which can protect your personal assets from business debts.
Then test the accounting software. (I like QuickBooks for Freelancers and FreshBooks.) Pick one that creates functional invoices, makes it easy to enter expenses, and stays on budget.
Now you are open for business! All the expenses that you incur, from software to coffee shops with customers, go into the software. Every dollar you earn too. Keep receipts for all. As you correctly guessed, expenses ≠ write-offs. Simply put, write-offs (or deductions) are ordinary and necessary costs to your business. Photoshop? Yeah. A Manet for your home office? No.
The truth is, it is not that simple. There are special rules for the deduction of start-up costs. You may need to make estimated tax payments quarterly. And we haven’t even talked about tax credits.
If the taxes are at the 4×100 relay, you will do a good first step by really keeping good tracking of your income and expenses. Let a tax professional take him to the finish line for at least the first two years.
PS: Starting August 17, Ryan will be writing a personal finance newsletter twice a week to make you smarter about your money. Become one of the first subscribers.