I started freelancing in ’98.
When tax time came around, I did what I had done since my first job at the East Orange Public Library. I gathered up my paperwork and gave it to my mom. She and my dad had an accountant who came each year around the same time. And for years, he did my return for a small fee that my parents paid for me.
Then I moved out of my parents home. And soon, taxes were one of those Things That Grownups Did. You know. Like, laundry and food shopping.
In 2000, I didn’t file at all. The 1099 forms that came in the mail from the magazines I wrote for scared me. There were no taxes taken out! What did that mean? How much did I owe the government? How much would I have to pay to get the return done?
I did what I usually do in these situations:
2001. Tax time rolls around. The 1099s start piling up in the mail. And I’m thinking, no way i made this much money! Where the hell did it all go? And how much do I now owe?!?!?!
I didn’t file a return. Again.
The following year, I vowed to save 20% of every freelance check for taxes so that I wouldn’t get an April surprise.
That didn’t happen. 2002, didn’t file. Again.
Finally, in 2003, I knew I had to get it together. I couldn’t just keep running away. TH, (who was just TB back then), asked around and heard about a guy we’ll call Farc Malk. TB heard that Farc Malk was official. And that he was particularly knowledgeable about freelancers and their specific needs. I made an appointment for me and TB and we went together.
Farc Malk wears jackets that are two sizes too big. He’s been in New York, working as an accountant, since before any of us were born. He’s always always always got a cigarette dangling out of the side of his mouth. Always. He rolls his sleeves up to his elbows while smoking. His fingers fly across his huge calculator and he mutters to himself as he determines how much he can save you.
Dude takes his job very, very seriously.
The first day we met, he looked me and TB over and took a cigarette out of the inside pocket of his suit jacket.
“Who referred you to me?” he asked.
TB told him.
Farc nodded, lighting a cigarette.
“What’d she say about me?”
“She said you were the best,” said TB.
Farc nodded and sat back in his chair. He let out a plume of smoke and then took another deep drag.
“Did she tell you I was cheap?”
“No, she didn’t…”
“Good,” said Farc. “Because I’m not. But I’m worth it. Now let’s go.”
I hadn’t filed in years. And Farc didn’t bat an eye. He flipped through three years of 1099s and looked up at me.
“You lost yourself about three thousand dollars,” he said.
“You only have three years to file if the IRS owes you. So it’s too late for some of these. You just gave the government a whole lot of money. I’m gonna get it some of it back. Not all. But as much as I can. From now on, you will file every year. If you owe, they’ll find you eventually. If they owe you, get your money.”
Farc has done our taxes ever since. And dude is a monster. I remember one year, I was so happy with the returns that I blurted out: “Farc you are the best. I’ll never let anyone else do my taxes. Not ever!”
Farc looked at me with a wan smile.
“Not true. I know your type so well.”
“What do you mean?”
“Eh. You’re a writer. Not making much money right now. So I don’t charge you my usual rates. I cut you a break…”
(At this, I raised an eyebrow. Cause I felt like we paid Farc a lot).
“But you’re going to make more money. You and TH are doing well. And as the years go by, you’re only going to get better. And then, one year, you’ll start making enough money that you have to pay the government instead of getting money back. Then you won’t like me so much. Then one day, you’ll start making enough money that you get charged my non-starving-artist rate. And then you’ll think, maybe I’ll just go to H&R Block. You’ll leave for a year. Get your returns done by someone else. And then you’ll appreciate me…And you’ll come back. It’s happened dozens of times.”
“That won’t happen,” I told Farc. “I just know it.”
Farc smiled and lit a cigarette.
Fast-forward to 2008.
I am ashamed to say that I still don’t save 20% of my income. So I’m still dealing with April surprises.
And Farc was right on every single point he made all those years ago. I grew from a starving artist to a working writer to a semi-successful writer. And while the numbers got bigger, I never felt a real jump. Life happens. I got married, had a kid, bought a house. Though I was making more money, I didn’t feel like I was.
At any rate, this was the year Farc hit us up with his real fee. And my mouth dropped. Immediately, I started Googling H&R Block and Turbo Tax. I was pissed off. Charging us all that money when we weren’t even getting a refund. We owe. And we owe big. Damn if I’m gonna owe the government and pay Farc xyz. Damn that.
But before I could really bolt, I sat down and looked at my returns from previous years. I thought back to when we went to talk to mortgage companies and one broker said, “Wow. You’re accountant is something else…” as she looked over my taxes. “So smart to use the blahganfga form and cite the alfalfjg tax code since you’re a freelancer…” (I’m substituting jibberish cause I don’t know what form she was referring to. It’s all Greek to me.)
I thought about how much money I made this year. And I did a quick calculation of what 20% of that would be. Which is a rough estimate of what I could be expected to pay.
I knew Farc would do better than that. So I didn’t bolt. He completed our return once again. I hit him off with a check that made me want to double over in pain. (Though, I must admit, his fee plus what we owe is still less than what I would end up paying without him….)
Yikes. I digress.
(Speaking of digressing. I keep hearing my posts are too long. That I lose readers by overwriting. A few folks have suggested I half my posts. And then continue the discussion in the comments. One person emailed me: “Get your posters to talk to each other. Stop hogging the whole post. Make a community. Stop talking so much.” Ouch. That actually makes sense. But I don’t know how to stop talking…Let me try it right now and see what happens…..I’m gonna wrap this post up in the next 50 words!)
Okay. So Farc did our taxes. I owe a bazillion dollars. But I’m lucky to be in a situation where I’m earning enough to have to pay a lot. So I will not complain.
The point of this post is to give my fellow freelancers some tips, straight from Farc Malk, that will hopefully keep more money in your pocket. So let’s get it:
1. Hire a real accountant…
No disrespect to my H&R brethren but Farc says there’s no way you should be going to a cookie cutter accountant if you are a freelancer. The tax codes change so much. And drive-thru tax places are really not designed for people with multiple 1099s. If you have a full time gig and a very simple return, go for it. But if you are a full time freelancer, hire someone who specializes. (And don’t go flooding my email inbox. Find your own Farc.)
2. Keep. Your. Receipts.
Not just some of them. all of them. And not just occasionally. ALL THE TIME. Every year, Farc would tell me to save all my receipts. And every year, I’d start strong and then get lazy. Finally, Farc got tough with me. “Look, you are throwing away MONEY. Save your goddamned receipts.” The thing is, if you’re a freelancer, the government understands that taxis, newspapers, magazine subscriptions, etc, are an employment expense. If the item is under a certain amount, (I think less than a dollar), you don’t need a receipt. But for everything else, it’s essential that you hold on to your reeeipts. Your accountant won’t hand them in. But if you get audited, (and you will. Freelancers have complicated returns and get called out for returns way more than other folks), you’d better be able to back up all the deductions you claim.
3. Keep a calendar.
Great tip from Farc. Start of each month, print up a calendar. Throughout the month, jot down the dates of work related events. Album release parties, concerts you cover, pitch meetings over lunch, etc. At the end of the year, it will be much easier to estimate how much of your discretionary income actually went to work events. There are so many times I will take 35.00 worth of taxis for a story and never hand in the receipts to get reimbursed for the magazines. You can estimate how much of your money you spend on these functions if you have a calendar. Hard to know without a calendar how much you’re really spending….Calendars are also legal documents that can be used in an audit. So if you lose all your receipts. Or you don’t do a great job of keeping receipts, you have a better chance if you have a calendar that outlines what work-related events you attended all year.
4. Know your deductions
My favorite deduction is the home office deduction. Now that I have an outside office, obviously the rent, internet connection and phone line are all completely deductible. But so is the paint I bought from Home Depot to decorate. And the file cabinet I bought. And the blinds. And the movie poster. And the frame I put it in. And the desk. Everything that goes into that office, (within reason), is deductible! Now, there are some rules to this. I can’t redecorate my office every year and still claim the deductions.
But the crazy thing? Even before I had an office, I was able to write off the cost of rent for the bit of square footage I used as office space. Do y’all hear me? Whether you rent or own, measure the square footage of your work space. Is it 5% of your total square footage? Then you can claim a deduction of 5% of your mortgage or rent for the year. I’m dead serious.
There are tons of rules to this. I actually had to give Farc a detailed map of our apartment. And one year, we couldn’t use this deduction because the layout of our apartment meant that our home office didn’t fit the IRS’ rules. If I remember correctly, you have to have a common area leading to your office space in order to claim the deduction. It has to be a space that a client could come to. Can’t be like, a closet in your kid’s bedroom.
5. Know even more deductions:
If you write about music and entertainment, don’t forget movie ticket stubs, itunes receipts or other digital music downloads, all your online fees for blogs and such. Ladies, If you get your hair done before an important event, you can deduct it! (Has to be an exceptionally fancy hairstyle. And it can’t be a reg’lar event.) Fellas, no fancy haircuts for you. Sorry. But if you have dreadlocks and need them done up before an event. Ch-ching! Deduction! If you buy a couture outfit for an industry function, you can deduct it! (Every year Farc looks up at me with wide eyes and says, “Did you buy any couture!? And every year, I say, “No Farc. I’ve never purchased couture anything in my life…”) Regular clothes, no matter how expensive, are not deductible. It’s gotta be a gown or something really fabulous for a fancy schmancy event.
If you’re any kind of writer, all your books, magazines, newspapers are deductible. Don’t forget a single thing. Travel is important: Subways, gas, tolls, even part of your car note and car insurance can be a business deduction if you’re using your car to travel for writing assignments.(Even if you’re just driving to a train station.) Every bit helps!
Damn. I was supposed to end this post about a thousand words ago. Guess I’m no good at the short post thing. Oh well….As I was saying…
Your cable bill can be deductible, depending on what you write about. And anytime you step foot in Office Depot, Staples, et al, you’d better be socking away that receipt!
At some point, it may make sense to incorporate yourself and have all earnings sent in the name of your company. But you have to carefully weigh the risks there. You have to be making a certain amount of money for it to make sense for you.
As a matter of fact, let me make it clear that most of the hardcore deductions are for people who are solely freelancers. Not people who freelance and also have a salaried position. These do-or-die suggestions or for folks who make the bulk of their money in 1099s.
Ask your tax specialist if any of these tips make sense for you…
Dear readers, did you send your taxes off today? Are are you one of those lucky people who actually files early since you’re getting money back. Do you claim any deductions? To my freelancing homies, do you have any secrets you can share? Any deductions that Farc might not know about it? I doubt it. ‘Cause Farc is a monster. But still…
I’d love to hear from you….