Thread by @JimZub

It's tax time so I'm seeing a lot of stressful tweets from freelancer friends. No one gets into freelance art to crunch numbers, but managing that income is part of the job.

Everyone's situation is different, but here are some broad suggestions to help you out in the future:

1) Start a separate bank account just for tax money. When you deposit your checks or receive automatic deposits, make it a habit to shift over at least 30% of that income to the tax account and DON'T TOUCH IT. It's not your money (yet). Leave it alone if at all possible.

2) Keeping track of business-related expenses can be a pain, but it's a crucial to saving money:
Equipment, software, reference material, business meals, travel, all of it.

If you're not tracking business expenses you're paying way more than you should.

Super simple math:
If I make $10,000 in freelance income, but spent $2500 in equipment, travel, and reference in order to make that money, I don't get taxed on $10,000, I get taxed on $7500.

30% tax rate on $10,000 = $3000
30% tax rate on $7500 = $2250 (saved $750!)

One easy way to better track those expenses?
Get a separate credit card and only use it for business stuff.

That way each month you have a simple list of business-related expenses already tallied up and good to go.

Alternately (or in addition), keep each paper receipt somewhere easy to access. Have a pen handy so you can quickly write down any extra details not on the receipt (who you had dinner with, what the ref is for, etc.).

Same with digital receipts. Set up an email folder/tag just for expenses and file those away later: software purchases, digital ref material, travel bookings you're not being reimbursed for, etc.

3) Paypal is income. Patreon is income.
Both sites are required to hand over records to tax offices if requested.

I know it can feel like 'free' digital money, but don't look at it that way as it can really bite you later.

4) Keep track of your freelance income. Seeing where your money is coming from (specific clients, projects, conventions) makes it way easier to plan and budget for the future. Over longer periods you'll see patterns as your career develops.

5) For new freelancers, you're trying to avoid the Tax Whirlpool, that awful situation where you use current income to pay last year's higher-than-expected tax bill, which drains your account so you don't put aside the tax money you should now...Rinse and repeat.

For current freelancers who may be struggling with this stuff, use the frustration of this as impetus to change those bad habits. Start tracking expenses today. Start putting aside the tax amount as best you can moving forward now. Some is always better than none.

If you work in freelance art, I know it's your passion and hobby, but that doesn't mean those things you buy aren't business expenses.

Comic artists write off comic purchases.
Independent game designers write off game purchases.
Animators write off animated movies and art books.

There is a limit, of course.
You can write down a loss if you spent more than you made while getting your business up and rolling, but the tax man won't accept that year after year without growth. You can't claim to be a freelancer to tax shelter your actually hobby.

When Skullkickers (my first creator-owned series at Image) started, I spent more on art/promotion than I made so I wrote off expenses that added up to more than my freelance income, but it was only for two years.

If you get an audit request from the IRS (US) or CRA (Canada), they won't throw you in jail. It also doesn't mean they assume you're a crook.

In most cases they just mail you a letter asking for receipts that match a category total you claimed. That's it.

As long as you claimed the things you have receipts for, you are A-OK. Don't stress it. Photocopy/scan those receipts for your records and send them to the tax office. They'll confirm and you should be fine.

If there are severe discrepancies, they may choose to do a full audit.

Oh $%&#, a full audit? Yeah, that's a pain, but you did it to yourself if you claimed stuff you don't have records for.

Again, no one is going to jail. They're just going to ask for ALL your records for specific years to confirm your totals claimed.

I've been audit requested multiple times. It's not a big deal.

The Canadian Revenue Service was quite confused by a large amount of freelance income where I wasn't charging or paying HST (tax) on it until I proved it was all US-based/US dollar income, then I was fine.

Even with good record keeping, I would recommend getting an accountant if you make substantial freelance income. They can find extra ways to write off things and ways to legally balance the numbers even better than you can. That's their job.

Here's the other kick, whatever you pay the accountant is also a business write-off!
If they save you a decent amount (and they probably will) it actually does pay for itself.

Keep good records and you'll save the accountant time/hassle too.

How much freelance income do you need to make before you are supposed to claim it and possibly pay tax on it?

$400
freelancetaxation.com/the-minimum-fr…

That's $400 gross (total), not net (after expenses).

I don't want to go into too may specifics because it varies country to country, state to state, so double check how it works where you live.

In Canada, for example, I can write off up to 50% the cost of business-related meals/entertainment (including tips paid on the bill).

Everywhere's a bit different.
That's also where an accountant can be crucial.
They'll know all the tax ins and outs for your region:
Expenses, home office write-offs, retraining, you name it.

Okay, that's all for now, gang.
Thanks for all the kind words and shares.

I've gotta get back to scripting!

This thread has really taken off, so I compiled and organized the advice here into a single article if you want to share it far and wide (please do!)

Freelancing and Taxes: The Basics
jimzub.com/creative-freel…

Thanks!
(Artwork by @SeanIzaakse + @TBonvillain from Uncanny Avengers)

Also, if you check the right-hand sidebar on my site you'll see over 40 other tutorial articles on working in comics: breaking in, writing, pitching, finding an artist, the economics of creator-owned comics and more!
jimzub.com/category/tutor…