Freelancing does sound more beneficial than taking up a job, however it comes with a whole new set of hassles. One of the most important being handling our finances effectively. Financial planning involves budget planning, investment, tax filing, etc. Unlike a salaried individual, a freelancer needs to handle his or her own income tax. Taxation in this case takes more time and a higher need for understanding. If you are a freelancer, you should be very well aware of the process of filing tax as well as saving tax.
While filing for your return, you must remember there are certain expenses related to your freelancing that can be deducted from your income. Some of the expenses that can be claimed are:
The cost you incur towards your workspace is a deductible expense. If you have an office space towards which you are paying rent then, the amount can be deducted from your freelancing income. Any expense towards maintaining of the workspace can also be considered for deduction.
In cases where you do not have a formal workspace and work from your home or your parent’s house, you can enter into an agreement with you parents and pay them a fixed rent and claim it under business expense. If it is your own house, maintenance expenses can be deducted.
Some of the daily expenses that can be claimed are telephone costs, courier costs, travel expenses (work related), electricity expenses, etc. All expenses related to client meetings can also be considered as deductibles. However, it requires you to record all invoices and receipts.
Depreciation Cost Of Work Assets:
You are allowed to claim depreciation for assets used at the workspace for freelance work purposes such as laptop, desktops, printers, phones, etc. Depreciation, which is a part of the total cost of the asset can be deducted from your freelance income until the expiry of the asset cost.
If you hire people for your work, you are required to deduct a certain amount of TDS from the salary you are paying. The deducted TDS must be then deposited to the Income Tax Department. However, the payment made to the hired employee can also be considered as deductible.
Given below are some ways you can manage your taxes efficiently:
Maintain and Record Expenses:
As you are a self-employed freelancer, maintaining your financial records is one of the most crucial requirements. As expenses related to your freelancing work can be claimed under deductibles, it is very important you record each expense in detail. Try and avoid making cash payments, as cash payments above Rs.20,000 are not allowed to be deducted.
Keep Personal And Professional Expenses Separately:
It is very important that you keep your expenses well sorted. Most freelancers work from home and tend to mix up personal and professional expenses. Keeping business expenses separate comes in handy while filing taxes and saves a lot of time and trouble at the last moment.
Take Medical Cover:
Even though you are a freelancer, you must consider dire circumstances when are unable to work for a short period or even longer. The financial uncertainty that might haunt you and your family in such cases can be taken care of, by opting for a medical insurance product. A good medical cover can be a worthwhile investment apart from offering financial security along with it.
Hire A Professional Accountant:
If your finances are becoming hard to handle, tax filing can be an even more taxing process. Hire an accountant who will ensure that the finances are managed from the very beginning, taxes filed on time, appropriate investments made, etc. A good accountant may even help you save a lot of money.
Make Tax Payments Regularly:
It is advised that you pay your taxes on time, even as a freelancer. Keep aside a small portion of your earning for applicable tax so that there is no dent on your financial planning. Remember to pay before the deadline to avoid any penalties or interest on delayed tax payments.
Apart from following these steps, as a freelancer you can also look at other ways of handling your taxes. Having a good knowledge of the industry you are involved in helps you to be aware of allowances being provided by HMRC, which can be used by you. Maintaining a stable and regular client base is important so as to keep your income steady is very important. Taking professional help to file your taxes is also not a bad idea. An expert may help you understand where you can claim your deductibles and how you can handle your expenses better.