Saturday, March 1, 2008

Tax Man

It's that time of year -- figuring out taxes. As a self-employed freelancer, taxes aren't so cut and dried anymore. But, so far, it isn't a time of the year I dread.

Paying taxes is part of my overall business plan. With the help of my accountant, I figured out an amount to set aside with each pay check to put specifically for taxes. This is non-negotiable. The ladies at the bank laugh at me when I come in on Friday afternoon because I always apologize for how mixed up my bank is. A chunk of money into this account, some into that one, a little cash. Yeah, it is depressing sometimes when I go into the bank and hand over a whole check for the tax man account.

The accountant and I also come up with a realistic projection of how much I expect to earn in a given year. This is based on what I was earning over the past five months, both in invoiced amounts and actual income paid, as well as what is on my calendar for the next month or so.

My tax man money is touched by no one else. It's only dipped into when I have a major work-related expense, like last year when my computer died and needed replaced, and only when I calculate that I have enough left over to pay quarterly taxes.

When you have a job where someone else takes out your taxes, it is something you don't think about. You look at your paycheck, and maybe notice how much is taken out, but really, you just accept, this is what I have available. It doesn't work like that in the freelance world. It's easy to see a nice-sized check and think of how you can spend it. I know my husband will catch a glimpse of some checks and he'll say "wow."

I don't look at checks that way anymore. My brain automatically looks at every check and chops a third off. That third is tax money.

It's not fun to pay the tax man, but at least it isn't painful.


Valencia said...

It's definitely important to set money aside for taxes throughout the year. I make the mistake of always waiting until the last minute. I don't start saving until January of the new year, which means I only have four months to save for taxes. Fortunately, I've never had a huge tax debt - thanks to my write-offs and mortgage interest.

Telecommuting Diva

Patti said...

when we had our business, we looked at the incoming checks in the same way and never had an issue come tax time.

Drewpy Drew said...

Sounds very taxing.

Oh come on, I know you thinking of saying it.