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What, Exactly, Are Your Expenses?

accountingDo you know exactly what your expenses are as a freelance writer?

It’s surprising how few freelancers can answer this question with any precision. That may be, at least in part, due to a confusion of deductible expenses – that is the money you spend that can be deducted from your gross income when figuring your taxes, and what I’ll call living expenses.

Not surprisingly, it’s not always clear, but the general rule is that if it’s something you use for business it’s a business expense; if it’s something you don’t use for business it’s a living expense.

So my business expenses include:

  • A portion of my rent based on the size of my office compared to the rest of the house
  • A portion of my utilities
  • My computer expenses – both things like internet charges and the equipment itself. Also includes domain names, cost to techs, web space, and such
  • A portion of my mileage and of the car itself
  • Meals for clients
  • Education for my writing business
  • Books and magazines
  • Ink, paper, envelopes, pens, pencils, notebooks and the like
  • Business cards
  • Business travel
  • Business taxes
  • Wages I pay

My living expenses are all the rest, but it’s important that you track those too. Thus, in addition to the above I know how much I spend on:

  • Groceries
  • Dining that isn’t business related
  • The rest of the rent, car, utilities, etc.
  • Clothing
  • Medical expenses
  • Furniture that isn’t in the office
  • Donations
  • Savings
  • Money spent on my garden
  • Gifts given
  • etc. etc. etc.

My experience tells me that I need to keep track of all my money so I know what I’m earning, and what I’m spending and what I’m saving. Knowing my account balances keeps me out of vagueness.

I keep track of my money using Quicken Home & Business 2009 because I can’t add and subtract reliably. Quicken and other programs like it have some expenses set up, but make it easy to create your own list. When, for example, I pay my internet provider, that amount gets entered under business expense/internet. At the end of the year I take all the info to my accountant who works his magic.

Knowing your expenses, both business and personal, makes it much easier to figure out what you need to charge to not only pay your way, but with a profit as well.

You may also want to read What is a Billable Expense and Tracking Freelance Writing Billable Hours and Expenses.

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Image from http://www.sxc.hu

{ 4 comments… add one }
  • Expenses are an interesting one, and really, getting a good accountant more than pays for itself.

    Keep all receipts, jot a little note on the back mentioning something you were working on, and suddenly most things can at least have part of their value counted as an expense.

    It all adds up, and the less you pay in tax the better in my opinion.
    .-= Karl Rohde´s last blog ..Don’t Leave Your Case Study Alone In The Dark =-.

    • Anne

      For sure, the less paid in taxes the better… in total agreement. And yes, my accountant makes my life so much easier.

  • I’m going to give this new Microsoft Accounting program a try. It came with my Office 2007, so hey, why not make use of it?

    When I worked in real estate, we had some training courses. One was with an accountant. Sadly, clothing bought for your business is NOT deductible, as you’ve said, even if it’s a requirement that you dress in a certain way. There went my notion of high-end suits and nice heels. 🙂
    .-= Lori´s last blog ..The Value-added You =-.

    • Anne

      I remember being pissed off because nylons… stockings… weren’t deductible – don’t even own a pair any more – nor any pantyhose 😉

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