Doing my taxes the first time on my own was intimidating, at best. The year I started to earn money outside of my day job doing freelance photography, I knew that I had classes and equipment to deduct, so I took a mental health day in early April to sit at my kitchen table to figure it all out. Since I had no investments outside my previous employers’ 401ks, I was able to fill out the standard 1040 tax form with the attached Schedule A form to itemize my deductions. Proud that it only took me six hours to itemize my spending, it was only after I received a letter from the IRS explaining that I had figured out my taxes incorrectly and deserved a larger refund, that I decided to hire a tax accountant the next time around.
There are more or less two types of deductions, depending on your working situation. Most people who work in the 9-to-5 world take the standard deduction, which is an exact dollar amount that reduces the amount of one’s income that is subject to tax. Then there are those of us who do other work on the side. Therefore, for someone such as me, who writes books and does some photography outside of my writing job here at DivineCaroline, it is best for me to itemize my deductions on the Schedule A form, with the help on a tax accountant. For those who are married, depending on whether you have a separate business from your spouse, you may look into what is best for you whether to file as a jointly or separately.
- Save relevant receipts.
There are many expenses associated with your work that are deductible. These are just a few of the miscellaneous and job expenses that one can claim on a Schedule A. Create a system for yourself, any time you pay for something related to work, ask for the receipt, write on the receipt what it pertains to, and then organize your receipts according to the expense. I have one envelope for photography and another for writing, and then I sit down and create an Excel spreadsheet and log my expenses, as well as my income earned, and hand off the receipt envelopes to my accountant along with the spreadsheet.
- Other expenditures you may deduct.
The following expenditures are applicable for deductions, though some may or may not apply according to your lifestyle: you pay taxes and interest on a personal property, you have large, unreimbursed employee expenses, you have large medical or dental expenses, or a large uninsured theft or loss, and you make large contributions to charity.
- Know what questions to ask your accountant.
Accountants are in any yellow pages, found online, or by referral. I recommend finding an accountant by asking a friend who is in your same field. My last accountant in Idaho probed me with questions to figure out certain deductions that I would never have thought of on my own. A good accountant should ask you the right questions, but if he doesn’t here are some you could ask, which will give you an upper hand in getting a better refund.
- Do you work with other clients in my line of work? Ask if you can meet with a CPA or an enrolled agent (who usually specialize) to get more expertise.
- Can you provide me with a worksheet so that I know what kind of expenses come up where I should save the receipts (my new accountant gave me on that also had a timeline, which was very helpful).
- Will you organize my receipts for me if I don’t have the time?
- What are your fees? (Shop around.)
- Do you believe I’m paying the correct amount of tax, or too much or too little?
The tax law may be confusing, but it is also set up for us to take advantage of the deductions that are too beneficial for anyone to pass up. Knowing what to deduct from your taxes will educate you in the process while you play a game of trying to figure out whether the item just laid down your credit card for is an expenditure or not, and chances are, it probably is.