Freelance resources

[jkitiara]

What's the best book or blog you've read lately about freelance/self employment finance?

My husband is a freelance computer programmer and his record keeping is...imperfect. Since I'm the finance nerd in the family (and his hourly is about 5x what mine is) I'm going to take over the finances for his LLC freelance business.

I'm going to take a few classes at our local SBA, but does anyone have any recommendations for good books or blogs? We get sort of murdered on taxes every year (high income, low expenses). In fact, our accountant scolded us for having so few expenses! So I need help sorting out tax implications (MMM latest tax post was a good start) and what I can and cannot expense and what else I need to do.

Cheers!

[Vilgan]

I haven't actually come across a good book/blog for this specifically, more just accumulated knowledge and reading as its a very big area.

For 401k stuff, I've found the finance buff very useful especially this post: http://thefinancebuff.com/after-tax-contributions-in-solo-401k.html

For expenses, I've just generally combed the internet for business expenses and talked to people to understand their strategies. He should be keeping a receipt for basically everything and then you can comb filter through them to determine what has a business connection and what doesn't.

I found doing my own taxes (turbo tax is fine) to be very informative so that I understand the strategies better. The better you understand how taxes work, the more you can strategize to reduce tax liability.

I recently posted a suggestion that we create a business section so its easier to keep the info you are looking for in one area of these forums here: http://forum.mrmoneymustache.com/forum-information-faqs/forum-request-business-section/ and would appreciate a bump or "I agree" there since I think we need demand in order to get a forum section specific to business owners/freelancers.

[Matumba]

Posting to follow

[jkitiara]

Done.

Yes, I've been combing the internet too, but it's a bit of a hit-and-miss prospect, and no way to really focus on our specific scenario. Having a high income and low expenses is not a common complaint out there! And finding tax deductions is hard unless you are looking for particular things. I don't even know the right questions to ask.

I also hope to sit down with our accountant soon, but he's not my favorite. Like he will always answer my questions, but never offer anything further, know what I mean? He has never recommended what we do for my own retirement, I always have to ask pointed questions. When I asked if we should open a SEP IRA, he said yes, but never discussed the differences between that and a solo 401k which I didn't even know was an option at that time.

[randymarsh]

The most recent post is prefect for you guys: http://www.mrmoneymustache.com/2016/02/10/should-you-do-your-own-taxes/ Now that you're doing book keeping/admin work for the business, you can also collect a paycheck for the work you do and use it for additional retirement savings!

The biggest thing that will help you with the record keeping is separate accounts. All income related to the freelance stuff should go into a separate checking account. Likewise, all expenses should come out of this checking account (or be charged to a credit card that's used only for the business). Use accounting software like Quickbooks, GoDaddy Accounting, Xero, etc. It's like Mint for your business.

Pretty much any expense related to the business can be deducted from gross income. Mileage if your husband drives to meet a client. Computer that he uses to program on. Website hosting fees, business cards, health insurance for your family, plane tickets to a conference, subscription fees for services like Evernote, etc.

The site Freelance Switch, now http://business.tutsplus.com/categories/finance, has a lot of information.

[jkitiara]

Yes, MMM's latest post was really timely for me! We are still debating if it makes sense to switch to an S corp. At the moment it does not, but possibly for 2017. Also it makes me even more irritated that our rather pricey accountant is not more helpful. Top of my list to find a new one.

I checked out that business tutorial website. A good start, but it looks like everything is super duper beginner level. Like I could have written all those myself. I guess I'm looking for next level stuff.

[Axecleaver]

I started working freelance in 1996, so I have a few years under my belt. But I still learn new things about taxes every year. Here's a few tips, most of which you probably already know.

1. Take advantage of Section 179 deductions. The limits change every year, but this year it's basically no limit at all (over 100k). Any valid business equipment expense that you would have needed to depreciate over time, you can deduct as a straight-line expense. Computers, cell phones, COTS software, office furniture, and mixed-use equipment (stuff you use for the business part of the time, for personal use other times) all qualifies. Details: http://www.section179.org/property_that_qualifies_for_section_179.html

2. 50% of Meals/entertainment expenses. To qualify an expense must be "customary for your trade" and pass one of two tests; they're pretty easy to pass. For example, drinks with coworkers after work for networking purposes would probably qualify. Details here: https://www.irs.gov/publications/p463/index.html

3. Mileage to/from customer site. If you make your home your official work site, mileage to the office is deductible. You do not have to take the home office deduction to qualify.

4. Premiums for your health insurance are deductible on line 29 of the 1040 (probably an obvious one for you).

5. Wages paid to "helpers," which may include family members, are deductible as a business expense. Anything under $600 does not need to be reported on a 1099. Likewise any expenses for an accountant, lawyer, etc. are all deductible as straight line expenses.

6. Expenses under $25 do not need a receipt to qualify, in the event of an audit.

7. We cover this in the forum often, but SEP-IRA and Solo-K options are super awesome for contributing up to $53k a year in tax-free retirement savings.

I claimed $35k in non-wage business expenses last year. I kept each month's receipts to support this in its own folder, for audit defense. I plan to keep these for seven years.

[GreenQueen]

I started working freelance in 1996, so I have a few years under my belt. But I still learn new things about taxes every year. Here's a few tips, most of which you probably already know.

1. Take advantage of Section 179 deductions. The limits change every year, but this year it's basically no limit at all (over 100k). Any valid business equipment expense that you would have needed to depreciate over time, you can deduct as a straight-line expense. Computers, cell phones, COTS software, office furniture, and mixed-use equipment (stuff you use for the business part of the time, for personal use other times) all qualifies. Details: http://www.section179.org/property_that_qualifies_for_section_179.html

2. 50% of Meals/entertainment expenses. To qualify an expense must be "customary for your trade" and pass one of two tests; they're pretty easy to pass. For example, drinks with coworkers after work for networking purposes would probably qualify. Details here: https://www.irs.gov/publications/p463/index.html

3. Mileage to/from customer site. If you make your home your official work site, mileage to the office is deductible. You do not have to take the home office deduction to qualify.

4. Premiums for your health insurance are deductible on line 29 of the 1040 (probably an obvious one for you).

5. Wages paid to "helpers," which may include family members, are deductible as a business expense. Anything under $600 does not need to be reported on a 1099. Likewise any expenses for an accountant, lawyer, etc. are all deductible as straight line expenses.

6. Expenses under $25 do not need a receipt to qualify, in the event of an audit.

7. We cover this in the forum often, but SEP-IRA and Solo-K options are super awesome for contributing up to $53k a year in tax-free retirement savings.

I claimed $35k in non-wage business expenses last year. I kept each month's receipts to support this in its own folder, for audit defense. I plan to keep these for seven years.

This is incredibly timely and helpful! Thanks to all.

[jkitiara]

I claimed $35k in non-wage business expenses last year. I kept each month's receipts to support this in its own folder, for audit defense. I plan to keep these for seven years.

If I may ask, how did you rack up $35k? We only managed $4k (of expenses, this does not count healthcare premiums or SEP-IRA). We bought two ipads, he expenses every dinner & drink with anyone who could conceivably be called a business associate, expenses travel costs (which has thus far only been within our city) and bought a fancy new standing desk.

Our accountant told us to go to a conference somewhere, but we live in SF, all the main tech conferences are HERE! Neither of us wants to shell out money to go to random conferences in places we aren't interested in. Not going to spend the money just so I can deduct it. He's a programmer. This year he will buy a new computer, but other than that there is no equipment to buy. 

[Axecleaver]

Reading off the Schedule C:

Car and truck expenses (mileage) $3248 - commuting from home office to customer site.
Sec 179 expenses $4100 - computers and a cell phone, a tablet, maybe some kind of office furniture in there.
Insurance $2215 (gen liability and professional liability, contractually required in my business)
Legal/professional $1656 Accountant, lawyer for contract reviews
Office expenses $756
Supplies $683 (incl postage)
Travel $15k - hotels, flights, parking
Travel: meals and entertainment $4092 (can only deduct half, i spent 8k on this)
Utilities $3180

Sounds like you're doing fine with the deductions you're taking. My scale is a bit bigger but there's no magic category you're missing, I don't think, except maybe utilities for the home office.

[jkitiara]

Thanks for the insight! The great benefit of programming is that it's super low overhead, of course. High income/low expenses is a high quality problem to have :)