Area tax attorneys and an accountant recently offered several tax tips for freelance workers to help them protect their bottom line.
Attorney Cal Rose of Wright, Lindsey & Jennings LLP in Rogers, who specializes in tax and corporate law, said freelance workers, especially those in technology startups, should consider confidentiality or nondisclosure agreements.
These agreements are important, for example, if workers are inventing things. “Hey, I had this great idea, and two months later he’s doing it,” Rose explained.
Rose also said those who work in technology startups need to be more realistic now because “investors aren’t going to pay a premium” like they did years ago.
“Five, six, seven years ago, if you had an app and a good idea, there was a decent chance you could find an investor,” Rose said. “Tech investors haven’t received the return that they expected several years ago. People just need to go in with eyes wide open.”
Rose also stressed the importance of establishing a limited liability company to protect liability.
Attorney P. Delanna Padilla Pennington of Padilla Pennington PLLC in Bentonville, who focuses on assisting business owners with starting and managing businesses, said freelancers need to ensure they are paying estimated taxes quarterly.
The Internal Revenue Service allows these workers to pay taxes online through the electronic federal tax payment system.
“It’s probably the easiest way to do it,” Padilla Pennington said.
Workers can pay either monthly or quarterly by the 15th of each month or each quarter. Her clients say they pay on 13th to make timely payment.
Freelance workers should also set up an IRA, she said. “That, of course, is a way to ensure retirement funds.”
Workers should also track their expenses, such as education, books, vehicle payments, insurance, mileage and parking fees.
“Record keeping is essential,” said accountant Melania Powell, senior tax manager for HoganTaylor LLP in Fayetteville. “Open a business bank account and track your expenses. There are some great apps out for business expenses tracking and mileage.”
Also, freelancers should know the type of entity they have and the type of return they’ll need to file, Powell said. “Discuss which type of entity is best for you with your tax adviser.”