manage personal finances
Because we are freelance writers we're self-employed, and this means we are responsible for paying our own taxes. In order to pay your taxes, the first thing you should learn is how to manage your finances and expenses. The information that follows is based on my research and personal experience only. Therefore, if you're unsure about something, check with the IRS (Internal Revenue Service) for more information.
When you earn income for your writing, make sure that you keep track of everything you earn. You can keep track with invoices that you send out to your clients. Once the invoice is paid, mark it as paid and record the date as well. If your client does not want an invoice, because they send their own, just make one for your own records. Then, when payment arrives from that client, you will have their invoice (save it too).
By now you should already have a filing cabinet for your important records and documents. In your filing cabinet, if you haven't already, you need to place a folder for all your invoices. The folder I currently have for my finances is labeled 2006 freelance payment records. When a new year begins, you'll want to add a new folder for that year's payment records. Having a folder for each year's records keeps you from having a bunch of years in one folder.
Other than keeping invoices, you will also want to keep track of your earnings by creating a table with your favorite word processing program. This table can then be printed out so you can keep it by your desk to add your earnings to. Or, you can save it and update it as needed. If you save the table on your hard drive, make sure to also create a back-up copy every time you update it. My table includes six columns: date (date I was paid), for (name of company I did the work for), description (what I wrote for them), paid (the total I was paid), Paypal fee (how much Paypal took out, if any), and total earnings (my earnings after the Paypal fees. Let me explain the Paypal fee: I don't know exactly how this works, however, since Paypal keeps a part of my earnings its not mine, and so I figure I shouldn't have to pay taxes on something that isn't mine. The reason given is why I deduct Paypal's fee from what I was paid. There are also times when some companies don't use Paypal, and in this case, they pay me by check or money order. If I'm not paid through Paypal, I just place N/A in the Paypal fee field on my table. You can always add more or fewer columns to your table (create yours to meet your needs). I also title my table freelance earnings for 2006.
Because we are self-employed this means we must take our own taxes out of what we earn. I went to a tax consultant in my hometown and asked her how much I should take out of my earnings, and she told me 15%. So, to be on the safe side, take 15% out of all your earnings and keep it back so that you don't spend it. The 15% that you put back will be used to pay your quarterly taxes when they come due. From what I've researched, I found out that you don't have to pay quarterly taxes until you've at least earned $1000. Once you've earned $1000, you'll want to begin paying quarterly taxes immediately to avoid any penalties from the IRS (Internal Revenue Service).
At the end of each year, when you are required to file your taxes, you will also be able to deduct for any expenses that you've spent on your writing business. There are many types of things you can claim on your taxes, and as long as the items you bought had to do with your writing business, you can claim them. Some of the things we writers can claim are: mileage for any travel we have done that related to a writing job, any equipment bought for writing (laptop, computer, printer, fax, digital camera, etc.), telephone expenses for interviews and etc., supplies (printer paper, ink cartridges, etc.), charitable contributions, writing related books we've bought, advertising expenses, insurance expenses, travel expenses, postage expenses and more; see the IRS (Internal Revenue Service) Web site for more information.
Now that you have an idea of the expenses you can claim, here are a few tips for managing those expenses:
1. Keep receipts of everything related to your writing business.
2. Keep a record of the cost of those expenses and what they were for. Again, like when you manage your finances, create a table to help you manage your expenses as well. Your table could include three columns: purchase date (date you made the purchase), amount spent (how much you paid), what (the name of what you bought) and for (what the item, service or etc. was bought for).
3. File all your receipts in a folder labeled writing expense receipts or something similar.
Now, go manage your finances and expenses so that you don't get into trouble with “Uncle Sam.”
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