Tax season is a big hassle for most people, and unless we’ve managed to retain the memory of last year’s process, we’ll end up asking the same questions once again: What paperwork do I need? Which forms should I fill out? How do I file, and when’s the deadline?
But for freelancers, tax season can be a total nightmare. Even as individuals, we operate as a business, which is much more complicated than requesting the right salary record slip from HR.
Freelancers not only have to worry about our personal income taxes, but also about the taxes that we charge and remit for client services. Then there are records for expenses, calculations of percentages to claim, depreciation of assets to consider and the list goes on. Is your head spinning yet? The benefits of hiring an accountant for your work as a freelancer are plentiful.
Calculate What Your Time Is Worth
In order to assess the benefits of hiring an accountant for your freelanced work, you should conduct an estimation of how much your time is worth. Be honest about the likelihood of human error in filing (given the complexities of your business), and don’t forget to consider the amount of stress that you’ll be putting yourself through come tax time.
Multiply your average hourly rate by the amount of time you think it will take you to file your taxes. Then, compare that number to the amount and hourly estimate of hiring an accountant to do the same task. While the accountant’s fees may be higher per hour than your own, they will probably be able to complete the filing in far less time (which is certainly true in my case). They may even find ways to save you money that you would have never otherwise known.
I’ve always been extremely frugal when it comes to my spending as a sole proprietor. My opinion is that the more money saved, in as many different places as possible, the better. That’s exactly why I get an accountant to do my taxes. The value he provides and the time, effort and money he saves me is greater than the cost of hiring him.
When you’ve made the decision to hire someone to help you with your taxes, don’t choose the first accountant that you come across. It’s fine to ask your friends for recommendations, but make sure to get quotes from a handful of different accounting firms. This will give you a good sense of the going rate in your area.
Because accountants are dealing with the nitty-gritty of your income and expenses, the relationship you have with your accountant is an important one. So don’t discount the rapport you may have with some and not with others.
While it’s not necessary to find an accountant who specializes in freelance and independent contractor work, those that do may have a more granular understanding of how to optimize your financial situation. This can be helpful if you have international clients, complicated expenses, dependent family members and other sources of income (such as investment income and capital gains) to consider.
Keep Good Records
The easiest way to make tax time run as smoothly as possible is to keep good records of your income and expenses. You can use applications like FreshBooks, or simply maintain an Excel document and update it regularly (I try to do this at least once a month).
Ask an accountant ahead of time for the information they will need from you, and how detailed each entry should be. Also ask for your accountant’s advice about what percentage of your expenses you can claim — for instance, if you work from home, how much of your rent you can claim? Keeping good records for your accountant will make both your lives easier come tax time, especially when taxes are quarterly.
One of the biggest benefits of hiring an accountant for freelancers is simply the peace of mind that you get from knowing your taxes are in good hands. Freelancers have to constantly juggle a very broad range of responsibilities, and you’ve got plenty of other important to-do’s on your plate. Leave this one to the experts.