Preparing for Your First Tax Return

It's the time of year that freelancers and 1099 Moms start thinking about taxes.  It's a necessary evil, and the sooner you get started, the better.

I like to begin my tax preparation by gathering all of my important documents and numbers.  You'll need the following items in front of you before you begin, so start getting them together now:
  • Credit Cards statements (especially those that contain purchases related to your business)
  • Bank statements (if they show checks written or deposits from payments in your business)
  • Receipts for purchases made with cash (airport parking is a good example)
  • 1099's (these may not come until the end of February, but it's a nice habit to begin making a place for them in your file)
  • Invoices (you may have printed copies of these, or not.)
  • Expense reports (many clients have you bill for their expenses separately)
You can begin printing off online documents and gathering those you already have in paper form, and start putting them all together in a big file.  This will be your tax file, and depending on how much business you've done this year, it could be BIG!  You'll also want to begin researching what kind of tax software you'll want to use (provided you're not hiring an accountant.)  Most 1099'ers find that the basic version of online software that fills out a Schedule C is adequate.  Expect to pay between $30 and $100 for the filing software and e-file fees.

You may also choose to get software from a retailer that offers software on CD.  This should give you the same offerings as an online version, but won't be stored on a website.  (One of the advantages to having your info on a website is that you can access it anywhere, and you can view previous returns for up to 5 years -- regardless of what happens to your computer during that time.)

You will also want to take these next few weeks to start doing a rough calculation of any taxes that you may have to pay in.  While you won't have your official 1099's yet, it should be no surprise as to how much money you made.  Take that number, and subtract out your estimated expenses.  Then enter it into one of these calculators:

While not an exact amount, it should be able to tell you if you can expect a refund, or if you'll be cutting Uncle Sam a check this year.  For additional information on tax-specific issues, please see the official IRS website.

(*Photo by alancleaver_2000 via Flickr)

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