Question: When should I get an accountant to help deal with my freelance income?
FROM : Anonymous (via Ask TCI on our homepage)
Q: How much freelance money do I need to be making before I get serious about finding an accountant/learning more about taxes?
A: Until I started working here full-time at The Creative Independent, I spent the better part of the past two decades primarily living and working as a freelance writer. As a result, tax season remains a particularly harrowing time of year for me, conjuring memories of myself at 3am trying to make sense of mountains of receipts and doing my annual plea to the vengeful tax gods that the IRS wasn’t going to show up at my house and take away everything I owned. Eventually I got wise to the ways of how to properly do my taxes as a freelance person, but I’m embarrassed to say how long that actually took.
So, my advice to you—and to anyone bringing in any kind of freelance income—is to get an accountant now, preferably one who works well with people of the freelance persuasion. Don’t wait. The price of for accounting services may vary depending on your needs, but ultimately it’s money well spent. Ask around for suggestions, consult the internet, put the word out with people working within your creative community that you are looking for someone good, reputable, and who understands the needs of the creatively employed. As a freelancer, particularly if you work from home, there are tons of things that you can write off to help lessen your tax burden, and in my experience it’s worth paying a good accountant to help guide you through that experience.
The thing about freelance income is that it sneaks up on you. If you are doing a ton of little jobs—things that pay under $600 at a time—your clients are not legally obligated to file a 1099 form on your behalf, though many of them will. Even if they can’t be bothered to send you a 1099, it doesn’t excuse you from claiming that money as income (unless you are trying to be shady with the IRS, which I don’t advise). What may not seem like a ton of income scattered across the span of 12 months often adds up to much more than you realize when all those 1099 forms start showing up in your mailbox. When you consider that roughly a third of that money should eventually go to taxes, it almost always ends up being more than you anticipate whenever tax time rolls around.
So even if you are relatively new to freelance work and it only constitutes a fraction of your income, it’s still best to establish some good practices now. First, find an accountant that understands your needs and can assess your filing options, which will not only save you money, but also save you the horror of an audit. Next, if you are freelancing on the regular, think about filing your taxes quarterly. It might be more tax time than you’d like to think about throughout the year, but it can take away some of the sting of paying taxes in one lump sum in the spring. Again, ask an accountant,
they can easily help you set this up.
Also, as hard as it may be for some of us creative types, get your paperwork life in order. Establish a system for saving your receipts, recording your expenses, and keeping tabs on things related to your freelance work. Create a spreadsheet of your expenses, or maybe try using a program like Evernote to help you keep track. It’s worth it, and once you have a system in place it becomes much easier to maintain. Come next April, this will save you from wasting hours of your life sifting through old emails and bank statements trying to figure out if that thing you bought eight months ago also qualifies as a work-related expense. Even if all of this fiscal responsibility and receipt-hoarding can feel like the direct opposite of what it means to have a creative life (and even though it’s tempting—and cheaper—to maybe just wing it with Turbotax), I promise you that no amount of tedium is worse than stumbling out of an accountant’s office having been cruelly slapped across the face with a tax bill that you didn’t expect and totally can’t afford. That is a feeling you want to avoid at all costs.
Money is weird. Our brains really aren’t built for dealing with it, because our minds actually haven’t adapted that much from our days running away from tigers and hunting for berries to gorge on. We’re good at thinking about lunch, or about our chances of catching the bus if we leave right now. We think linearly—one thing after the other. Money isn’t linear, though. Money grows and shrinks exponentially.
That part was hard; there was a learning curve. My uncle is an accountant and he was handling my taxes. I learned Quickbooks while I was working for Mary Meyer. I also have a lot of spreadsheets. I think if you’re running a creative business you have to be aware of the fact that you’re not going to be doing creative stuff most of the time. Mostly you’re going to be e-mailing people.
A gallery will typically send you a check or wire transfer. Do not expect a 1099 form come tax season—as an artist you’re providing a good, not a service, and therefore don’t need a 1099. As always, it’s a good idea to keep a record of your payment history.
At certain points in my career I would spend up to 80% of my time fundraising. Lots of organizations spend up to 90% of their time fundraising. It’s like a Senator when they get back in office, they then have to raise X number of dollars every day in order to keep things going. It’s no joke. For artists, it can feel just the same.
That’s the thing about being creative: You’re trying to make money off of something so deep. It can be really scary.
T. COLE RACHEL is a writer, teacher and ceramic cat collector who lives in Brooklyn. His work has appeared in Interview, The FADER, Pitchfork, V Magazine, Interview, and The New York Times Magazine among others. He teaches a recurring poetry workshop, Poetry & Photography, via the Camera Club of NYC. His books include Surviving the Moment of Impact and Bend Don’t Shatter. He is currently Senior Editor at The Creative Independent.