For those perfect freelancers who remember to carefully record and track every expense, there isn’t much to do at tax time other than hand over their perfectly organized documents to their accountant. For the less perfect among us, we probably have some work to do. I am reasonably good at keeping track of everything, but there are always a few things that slide and get neglected. In my previous post about holiday stress reduction, I talked about getting ahead on some tasks that can be accomplished early — and one of those tasks is taxes.
For most freelancers, December is a slower month. Our clients are taking vacations and rarely does anyone schedule a big launch in December or January. This makes December an ideal time to get our finances in order, prepare for 2009 taxes and make any adjustments in our plans for 2010.
Everyone has a different approach to finances, taxes and planning, so rather than focus on how to do these things, I’m going to focus on questions that you should ask yourself.
- What am I missing? This is always a hard question because if you know the answer then it isn’t really missing, but it’s a critical question to ask. Look carefully at your expenses. Have you remembered to record all 12 instances of any monthly recurring expenses (hosting, online applications, phone, etc.)? What about those special cases, like home office deductions? Do you have any small income sources that haven’t been tracked (advertising, affiliates, book / white paper sales, etc.)? Can you get a head start on documenting any other tax materials? Cross-referencing with past tax forms and bank statements can help identify any missing income or expenses.
- Are my income and expenses relatively balanced? 2010 is way too late to make adjustments for 2009, so this is a critical question to look at in December while you still have time to make changes. Depending on the answer to this question, you might decide that you can afford to make a few extra business purchases (new equipment, books, etc.) or charitable contributions in 2009, or you might decide to defer some purchases to 2010. This is a great question to ask your accountant now.
- Where do I want to be in 2011 and beyond? Your answer to this question should include financial goals, career fulfillment, and personal life balance. Once you figure out where you want to be, you need to put together a plan with the steps to get you there. What additional training do you need? What expertise needs to be further developed and practiced? Are there some additional income streams that you want to pursue?
These three questions aren’t revolutionary or new, but they will hopefully serve as a nice reminder to use some of the December downtime to start thinking about wrapping up 2009 and preparing for 2010.
What other things do you do to wrap up the current year and prepare for the next?
Photo by Alan Cleaver used under Creative Commons.