Tax Tips for Freelancers: File Late but Don’t Procrastinate

The American economy has been beaten up, but we can see signs of rejuvenation. New opportunities may abound for the creatively self-employed, the sector of the economy that I call indies.

But in the midst of the nation’s economic rebound, the mad rush of the tax season is madder than usual. Congress’s tardy adoption of the American Taxpayer Relief Act has interfered with IRS readiness, which means that the IRS will be slower than usual in processing tax returns. And many tax forms — including those often used in an indie’s tax return such as that for depreciation — may not be ready until “sometime in March.”

So, your tax preparer’s operation may also be running late. Or, she may be quite harried trying to make up for the delays. Put all this together and it may be the right year for you to file an extension.

500x500_hottostartThere are many good reasons to file after April 15. I urge my clients to do it. And this year, with all the delays, there is extra incentive. Don’t believe that old husbands’ tale that an extension is a red flag. Hogwash. Read my post and file an extension. It’s the smart thing to do. How can you take advantage of the extra time? Consider the following as possible tax-saving ideas.

Proof Your Income

Tally your income. Be sure it’s accurate. Compare your accounting to any 1099s you receive and also to your bank deposits. Keep in mind that 2012 is the first year that you must separately list any income from internet sales such as Ebay, Craigslist, Amazon, etc. Those online merchants will be sending 1099s.

Use Your Rearview Mirror to Make 2012 Decisions in 2013

Since you have until October 15, 2013, to file your 2012 tax return, you and your tax pro have more time to decide how items on your tax return may be treated to your best tax advantage. Events this year may help determine which choice is most advantageous for last year. More income in 2013 than in 2012 may mean equipment should be deducted differently. Or a high income in 2012 may mean you should put the maximum into your SEP or SOLO-k and you have until mid-October to make the contributions. Note: Those are both indie pensions that you may want to discuss with your tax pro.

Deduct All Your Work Areas

Contrary to another old husbands’ tale: A home office deduction does not trigger an alarm at IRS headquarters. Even if you work out of two or three places, they may all qualify as legitimate deductions, if used exclusively for your work, even if you do only administrative chores in one of them.

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Home Office Means A Bigger Transportation Deduction

The IRS does not allow a deduction for commuting from home to work and back. But it does allow a deduction for getting from one workplace to another. If you begin your workday with morning coffee in your home office while sending out business emails or doing your billing and then head to your studio in town, you are going “from one workplace to another.” You’ve increased your business miles and the amount of your auto deduction, or have made your subway trip a deductible expense.

Deduct A Gift Basket of Fruit to Mom

You can do it if Mom has some connection to your business. Did she show you how to hook up your scanner? Make curtains for your office? You’re an indie business. Though you may have a personal relationship with someone, that does not rule out also having a business relationship. If you bought your client a basket of fruit for a birthday present you would treat it as a business gift deduction. But what about your friends with whom you have a business connection? If your webmaster friend invites you to her place for dinner and you bring flowers, you’re arriving with a business gift.

Business Trip Mishap

Spill ink or red wine on your white silk blouse while attending a design conference? Dry cleaning and laundry while on a business trip are deductible expenses. You also may deduct the cost of your first dry-cleaning bill after you return home.

Don’t Give Up Your Land Line

A cell phone has been reclassified. I won’t give you the tax jargon but know that if you have and use your cell phone or other similar telecommunications device primarily for business, you may deduct 100% of its cost and monthly service fee. Previously, you were required to keep a log of personal and business calls and text messages. Of course everyone did that. Right? But now it’s OK if you don’t, if you follow some guidelines.

An employer may provide for his employee and deduct as a business expense a cell phone used primarily for business. You are self-employed and therefore you are both employer and employee. So you may deduct all cell phone expenses.  For a 100% business deduction, the primary purpose of the cell phone or other communication device must be for business.

What does the IRS mean by “other similar communication devices” that are also 100% business deductions? Well, we know that whatever is meant by that today will likely mean something else several months from now. I think of them as smart phones, iPads, cable hook-up and service, Palms, and other PDAs. Don’t try to finagle. Make sure you are getting that cell phone or iPad primarily for business.

copyright 2013 June Walker