Tax Planning For Freelancers

I don't want to hijack Blake Oliver, CPA's thread, so I started another one... A lot of my work as a tax attorney involves cleaning up. Sometimes, that means cleaning up after a taxpayer's mistakes, but it can also mean cleaning up after another tax pro's mistakes. While there are some great tax professionals out there, there are also some bad apples. Before you hire, do your homework. Here are some quick and (mostly) easy due diligence recommendations: 1) Check credentials. You can confirm CPAs through a state board of accountancy and tax attorneys through a state bar. EAs are licensed through IRS, so check with IRS directly (email epp@irs.gov). Not all pros have credentials (you don't need one to prepare a return), but if a tax pro holds themselves out as having a credential and is not currently licensed, that should be a red flag. 2) Pay attention to reviews. Ok, admittedly, this is a loaded suggestion. While review sites can be helpful, they can also be misleading since not every client leaves a review. That said, if reviews are lopsided with loads of clients suggesting they've been ignored or scammed, pay attention. 3) Google the person (not the company). You've probably heard me say this before, but it's worth repeating. Some folks simply start a new company when they get bad reviews, suspensions, lawsuits, or, in some cases, indictments or convictions (yes, really). Sometimes, changing the name of your company is for bona fide reasons like restructuring or rebranding, but constantly switching gears is often a sign that something more serious is happening. 4) Ask for referrals. In some areas, the tax pro community is pretty small. Treat looking for a tax pro the same way you would if you were seeking out another service like a hairdresser, general contractor, or medical specialist—ask your friends and family who they might recommend. 5) Ask the difficult questions. If someone you are considering (or currently) working with demonstrates red flags and you're not yet prepared to walk away, ask for clarification. Running a business is hard work, and I don’t want to suggest that a few small mistakes should disqualify anyone from earning a living—goodness knows none of us are perfect. But handing over your personally identifying information is a big deal, and you don’t want to be in a position where you’re subject to penalties or audits because your tax pro is constantly unresponsive. If you feel uncomfortable about something you’ve read, heard, or experienced, ask questions. There may be a reasonable explanation (busy season, medical issues, etc.) but it may also be a piece of a larger pattern of missteps. If the tax pro refuses to comment or sidesteps your questions, I think you have your answer. Working with a tax pro shouldn’t be stressful. We’re in a relationship business—that should be a good thing. But as with any professional relationship, don’t be afraid to walk away from a relationship that won’t work (or isn’t working) for you.

AI can’t file your taxes -- but it can prep 90% of them Level up your tax preparation with these 10 prompts. Stop stressing about the April 15 tax due date in the US. Start here: 1. Tax Planning Calendar Create a month-by-month tax planning calendar for the current year. Include deadlines for estimated payments, contribution cutoffs (IRA, HSA), and helpful reminders for deductions. 2. Document Organizer What documents do I need to gather to prepare my taxes? Include both income (W-2, 1099) and deduction-related (mortgage interest, charitable donations) forms. 3. Freelancer Tax Prep Make a checklist of everything a freelancer should prepare before filing taxes. Include business income, deductions like home office, and quarterly payments. 4. Deduction Decoder Explain the difference between the standard deduction and itemized deductions. When does it make sense to itemize instead of taking the standard deduction? 5. Quarterly Tax Coach How do I calculate and pay estimated taxes as a self-employed person? Walk me through when payments are due and how to avoid underpayment penalties. 6. Tax Credits for Parents What tax credits are available for parents with children? Include the Child Tax Credit, Child and Dependent Care Credit, and the Earned Income Tax Credit. 7. Crypto & Taxes How do I report cryptocurrency transactions on my tax return? Explain capital gains treatment, taxable events, and how to track cost basis. 8. IRA Strategy Session Compare the tax advantages of a Traditional IRA vs a Roth IRA. When does it make sense to contribute to one over the other? 9. Filing Extension Help How do I file for a federal tax extension? Give me a step-by-step overview, including how much time it buys and what payments I still need to make. 10. Side Hustle Tax Tips What tax steps should I take if I earned side income from a gig or hobby? Help me understand how to track income, deduct expenses, and file correctly without setting up a full business. ♻️ Repost this to help your network with their tax preparation. ➕ Follow Kabir Sehgal for more like this.

I spent less than 1 hour filing taxes this year. Not because we didn’t make money. :) But because we planned. Planning saves me stress, valuable time, and energy that should go into finding leads and closing deals. Here is how you can get ahead of the game and prepare next March: ☑ 𝗛𝗶𝗿𝗲 𝗮 𝗕𝗼𝗼𝗸𝗸𝗲𝗲𝗽𝗲𝗿: No matter how small your business is, a bookkeeper organizes your financial records and categorizes items correctly. ☑ 𝗥𝗲𝘃𝗶𝗲𝘄 𝗠𝗼𝗻𝘁𝗵𝗹𝘆: By the 10th of each month, review your P&L and financial statements with your bookkeeper. This keeps you informed. ☑ 𝗦𝗰𝗵𝗲𝗱𝘂𝗹𝗲 𝗧𝗮𝘅 𝗣𝗹𝗮𝗻𝗻𝗶𝗻𝗴: In the Fall, book an hour with a CPA for tax pre-planning. This helps you explore options and trade-offs. ☑ 𝗜𝗱𝗲𝗻𝘁𝗶𝗳𝘆 𝗣𝗼𝘁𝗲𝗻𝘁𝗶𝗮𝗹 𝗣𝗮𝘆𝗺𝗲𝗻𝘁𝘀: Know the large amounts of money you may need to pay (if profitable). This prepares you for any surprises. ☑ 𝗦𝘂𝗯𝗺𝗶𝘁 𝗗𝗼𝗰𝘂𝗺𝗲𝗻𝘁𝘀 𝗶𝗻 𝗙𝗲𝗯𝗿𝘂𝗮𝗿𝘆: Hire the CPA again in February to submit the paperwork. Send last year’s financial documents to them. Taxes are stressful enough. Don't add to that stress by procrastinating. PS. I'm forever grateful to all the financial professionals in my life!

I’ve seen business owners lose thousands of dollars to taxes, not because they were growing, but because they didn’t plan. After working with 50+ business owners in the US, Canada & Australia, I’ve noticed a pattern. Most founders treat taxes like a fire alarm. They wait until the end of the year, rush to their CPA, and hope for the best. But here’s the truth: Tax planning isn’t a last-minute task. It’s a cash flow strategy. Here’s what smart founders do differently- 1. Use July to September to forecast net income, review compensation structures, and adjust before it’s too late. 2. Review your entity structure annually. If your profits have grown, your business setup should evolve too. 3. Plan your draw vs payroll mix wisely, and explore family payroll strategies to legally reduce tax burden. 4. Optimize ownership and timing. Tax efficiency comes from decisions like how assets are owned, when income is recognized, and how profit is distributed. PS: How early do you start planning your taxes?

32 year old Makes $160K/year in his W-2 and another $200K net in 1099 income Before we talked: - $20K tax bill on top of $60K of estimated payments - Cash heavy - Not sure what he can do After we talked: - Set up a solo 401K for his 1099 income - Contribute $14K as an employee contribution to this plan pre-tax. 14K * 35% marginal tax bracket is a $4,900 tax savings on 2024 taxes. He can only do $14K since he contributed $9K as an employee to his W-2 company 401K plan - Contribute $37K as an employer contribution to this same solo 401K plan pre-tax. $37K * 35% marginal tax bracket saves him $12,950 on 2024 taxes - Contribute $3,150 to a HSA with Fidelity. He put $1K in his company HSA so he can still put $3,150 in a Fidelity HSA. Reduces his tax bill by $1,102 Then we'll move into 2025 tax planning to be more proactive on what we can do. Once he gets married he can do Roth conversions that we deferred out of 35% marginal tax brackets. If he wants he can do a retroactive traditional IRA contribution to do a backdoor Roth for 2024 and 2025. He could also do another $18K as a mega backdoor Roth via his solo 401K plan but he would like to buy a house in a couple of years so we might hold off on that ($18K mega backdoor Roth contribution is accessible immediately tax-free and penalty-free though, backdoor Roth has a 5 year holding period)

If you are looking to hire an accountant for the first time, NOW is the time to find one as there is a shortage of them due to all the craziness of the past few years and many have limited availability. Here are some things to take into consideration: Preparer vs Advisor: Will they just prepare your returns or will they also help you with tax planning? Experience: Have they worked with clients in your industry? Have they had experience with issues you want to address? Do they prepare the types of returns you need (individual, trust, s corp, partnership, payroll)? Availability: Will they take time to meet with you or have a phone call to assure you understand everything? Are they around year-round to help with notices or answer questions? PTIN: Do they have a PTIN (preparer tax identification number)? This is required by the IRS for anyone who prepares taxes for compensation. Are they a CPA, EA (Enrolled Agent) or tax attorney? These are the only 3 designations that can represent clients before the IRS at an audit. Security: How do they protect your information? Do they email documents to you or do they use a client portal? Is there a shredder in their office? E-filing: Do they e-file and do they charge extra for it? The IRS requires preparers who prepare more than 10 returns to e-file them. Most professional software companies do not charge extra for e-filing so you shouldn't be charged extra either. Client Load: How many returns do they prepare? This will give you a sense of how much time they may have to answer questions during tax season. Your accountant knows more about you than almost any other professional so take time to connect with a few to get a sense of who they are and how they work. Each will be able to prepare your returns. It is their style and other offerings that differentiates them so finding one you click with is key? What else do you consider? #taxes #financialliteracy #lawyers

I didn't report my side hustle income. The IRS won't notice, right? Wrong. The IRS requires you to report every dollar you earn. Yes, even that $50 you made dog-sitting or the $100 from selling crafts online. If you ignore this, you might face audits, hefty penalties, or even legal trouble. So how do you stay on the right side of the IRS? Start by tracking all your income sources. Use apps or spreadsheets to record every payment. When tax time rolls around, report everything on your return. For most side gigs, you'll use Schedule C. If you received a 1099 form, make sure it matches your records. Don't forget about estimated tax payments if you're earning significant side income. This helps you avoid a big tax bill (and potential penalties) at year-end. Remember, honesty is the best policy with the IRS. Reporting all income keeps you compliant and stress-free. Plus, you might qualify for deductions related to your side hustle. By playing it straight, you protect yourself and potentially save money in the long run. #irs  #income  #finance

You earn enough, that’s not the problem. The problem is costly tax mistakes. And most people don’t even see them. Here are 10 of the most common traps at tax time and how to fix them before they drain your wallet: 1/ Filing too late → File early to avoid penalties, interest, and last-minute stress. 2/ Missing deductions → Review every eligible expense with a checklist so nothing slips through. 3/ Forgetting home-office write-offs → Claim your workspace correctly, it’s a legitimate deduction when used properly. 4/ Misreporting freelance income → Track all 1099s and side income, even small gigs, to stay compliant. 5/ Not tracking receipts → Use apps to keep everything organized, no shoebox scramble in April. 6/ Over-relying on refunds → Adjust withholdings to keep more cash throughout the year, don’t treat refunds like savings. 7/ Ignoring retirement contributions → Add pre-tax savings, like IRA or 401(k), to reduce liability while building your future. 8/ Treating tax planning as “year-end only” → Plan quarterly, not yearly, so you’re not scrambling at the finish line. 9/ Not separating business and personal expenses → Keep clean records with separate accounts to avoid audits and chaos. 10/ Skipping professional advice → Consult an expert before big decisions, because mistakes cost more than fees. Taxes don’t just measure income, they measure habits. The right ones save you thousands. Which of these mistakes have you seen (or made) most often? Follow me Divakar Vijayasarathy for reflections on Life, Tax and Entrepreneurship.

Wrapping up my Tips for Solopreneurs series with some HUGE financial tips for US based freelancers. This assumes you are filing as S-Corp (see previous post). 1️⃣ Payroll: You become a W2 employee of your business. This means you need to run payroll. Some accountants will handle this for you, but I've found it cheapest and easiest to use a professional payroll service like Gusto. They will file quarterly tax filings for you, no extra charge! Running payroll every two weeks instead of quarterly (most accountants will do quarterly, less work for them), allows you to budget 401K savings evenly throughout the year. 2️⃣ 401K: Perhaps the hugest financial benefit to being a solopreneur is what you can do with your 401K savings. Your business can match up to 25% of your annual salary. (Per previous post, you set your salary at a fraction of what you plan on making, so this is NOT 25% of your revenue). Let's use a salary of $75,000 for example: Any US employee can save $23,500 as an individual. (regardless of your salary) Your business can match $18,750 for a total of $42,250 401K savings in one year. This entire $42K reduces your profit for the year, lowering your tax burden. Now you see why I said to run payroll every 2 weeks instead of quarterly! 3️⃣ More stuff on payroll... Spread your projected annual tax burden for the year across your 26 paychecks. After taxes and 401K savings my bi-weekly paycheck is a measly $300 or something. But this means I'm always about even on taxes at the end of the year (I never owe extra). 4️⃣ Set up recurring bi-weekly distributions. (This is the money you live off of). The bulk of your living expenses are covered by "distributions", not your paycheck! Figure out what you need to cover your monthly spending, and set up recurring payments to yourself for that amount. --- Of course this implies your going to have stable revenue to support this much savings and scheduled money moving. If you follow what I mentioned in my first post, it guarantees this stable revenue for you. (Partner with a consulting firm or recruiter, then eventually learn how to gain direct clients.) --- Finally, you need a good community of people to support you on your journey. Technical Freelancer Academy is a community of like minded solopreneurs. You can always hit me up for advice there! 🥂

I think identifying a good CPA/tax professional is straightforward... 🔹 Does this person ask intelligent questions? 🔹 Does this person ask about the client's future goals? 🔹 Does this person offer to research or provide evidence for advice given? 🔹 Is this person confident in both what he/she does and does not know? Tax professionals are doing their clients a disservice by strictly being reactive, rather than being proactive and asking questions about financial goals. That's the first step to tax planning. The Tax Code is also several thousand pages long. Add in all the Treasury Regs, Revenue Rulings, and other guidance... you are looking at 70,000+ pages of reference material. No pro is an expert in every area. Tax professionals need to be competent in their research skills just as much as in their ability to "crunch the numbers". Being able to communicate these findings in a way that makes sense to the client is another key skill. At its core, this is a people business built on trust. Not knowing the answer to a question does not mean you are incompetent. Good professionals surround themselves with the resources and proper network to get the answer. Thoughts?