Those of us who freelance or have other small businesses from our homes often have no one to help us navigate the treacherous tax waters. I sit down with Bruce Nowakowski, a Maryland small business accountant, to talk about the basics of freelancing and tax.

1. What can a home-based freelancer claim on taxes as expenses?

It depends on a number of things. If you have a room dedicated to your business then you can deduct a portion of your rent, electricity and other utilities. The portion is determined by figuring out the square footage of your apartment/house and dividing the square footage of the room. For example if you have a 1,000 square foot apartment and a 200 square foot room is used exclusively for the freelancing then you can deduct 20%. Business use mileage can be done at 50 cents a mile under current rates (changes annually). If you work from home and travel to a client or to pick up office supplies, this counts toward that mileage. I issue all of my clients Excel spreadsheets that track mileage (in addition to business expenses reimbursed to an employee or personal account). The IRS will want to know where you went and the estimated mileage on how to get there and back.

2. Does it make sense for a freelancer to set up an LLC?

An LLC will limit your liability if you are sued and protects your personal assets if your company goes bankrupt so it probably does from a legal sense, especially if your industry tends to be litigation prone (i.e. a construction company). In normal accounting sense, an LLC is considered a pass through company and thus it is still taxed on the owner(s) personal tax return at the personal rate UNLESS you also elect to be taxed as a corporation. If you do, and the IRS approves it, you will be allowed to deduct a reasonable salary from the company before the company is taxed. You will still be responsible for income taxes on both your salary and the company’s Net profits, but since both are smaller than a single large amount, they will both be in a lower tax bracket.

3. How does a freelancer file their taxes? How much (%) should they set aside to pay the IRS every year?

It depends on your situation. A freelancer with no other source of income (no W-2 employers) needs to make an quarterly estimated tax payment if you have a net profit of $1,000 a quarter. If you were in business last year, and are doing about the same financially, it is ok to use the same bracket to calculate how much you are likely to owe based on the current quarter.

If you are doing this part time; have a full time job and ended up owing taxes because of the business last year, you can ask your employer to take extra out of you paycheck each week to spread the payment around. If it was less than the $1,000 threshold, then put it in a CD or something to earn some interest.

Bruce Nowakowski is a Maryland small business accountant who runs Nowakowski Accounting and Business Services, LLC. Contact Bruce through his website or at 443-520-5225.

Now, there are a few gems buried among the turds. I have bought quite a few ebooks that have been hugely helpful. But for the most part, I am being offered a bill of goods. A lot of them say “join my membership site for networking!” only to have you find out that the only people you’re networking with are the ones offering the site. Truth is, as a member of the Canadian Association of Journalists ($75, annually), I can network in my field for much less money. I can go to the MediaBistro quarterly mixers in my region. And lord knows I can tweet. I have made an amazing amount of valuable contacts via twitter.

And what of the courses? Are they of any value? I honestly have no idea. The freelancer who can drop $400-900 on an e-course actually doesn’t need to learn much about the business, I’d say.

I want to read writing blogs and get a sense of the person doing the writing. I want to know where they came from, where they are now, and what the journey was. I want to hear the wisdom of the day-to-day. What I don’t want is to be pitched all day, every day.

So today I unsubscribed to about 30 blogs, which I will not name here. My time is valuable, and shouldn’t be wasted on the blog equivalent of infomercials.

Your time is, too. Be selective as to what you want to read. If the blogs you read offer real value, and somewhere along the way the writer provides a product or service for a fee, go for it. But don’t get bogged down under a heap of sales offers all day long. That’s time you could be spending doing some actual writing of your own!

A change of career direction should not be mistaken for standing still, but it often is. If you are seen to be sleeping late, not wearing pants*, etc, you are considered a time-waster; someone who doesn’t or won’t work. I disagree. I just don’t happen to work in a job like yours. I don’t commute anymore, I don’t buy my lunches at the fast food joint in the mall, and I don’t sit in a cubicle. Nor do I wish to.

Of course, friends have a right to be somewhat concerned, at least until I really start producing. After all, given what they know about me, it’s easy for me to spiral down into a depression and forfeit any good work I had already accomplished.

But for now, what I need is a week to get my brain used to the new routine, and to find the rhythm in my new lifestyle. I’m not standing still, I assure you. I’m just hitching a ride in a new direction.

* And I really do wear pants. Vinyl kitchen chairs in a heatwave? Yeah, pants.

It is 94° in my apartment, mercifully minus the bedroom, where the air conditioner is straining to capacity to keep my sheets cool. As I reached for a book about an hour ago, a funk tickled my nostrils and I realized I had fallen into the worst work-from-home trap: Forgetting to bathe daily.

Don’t snicker – anyone who works from home has fallen prey to this oversight at one time or another. It’s so nice to roll out of bed at your own pace (ironically, I woke up “on time” today, for the first time in months), throw on a pair of shorts, and hunker down at the computer. There’s no one to see/smell you, and the dogs don’t care. In fact, they prefer you at your most pungent.

Other things that fall by the wayside when you work from home: Clothes without holes, clean clothes (with or without holes), cooking/eating, answering the phone, going outside… the list goes on and on. It’s both a blessing and a curse. A blessing in that I will be saving a fortune in transportation (the Toronto TTC is one of the most expensive transit systems in the world) and dry cleaning, as well as buying lunches. A curse in that I will have the pallor of the walking dead and will often smell like them too.

Sigh. This is going to take some adjustment and a whole new routine.

That said, I have showered and already feel 10° cooler. The dogs aren’t as affectionate, though.

1. 9-to-5 really doesn’t work for me. First of all, my circadian rhythm is such that my natural wake-up time is about 9. Oops. Add to that a 45 minute commute with dirty “bus people,” and it was a failure from the outset.
2. I have an uncanny and heretofore unknown knack for sales. I rock at B2B. Who knew?
3. Wendy doesn’t work well with others. I was in a Project Management role, which suited me beautifully. One-on-one with the client,  making things happen; I was in my element. But when faced with office politics, it brought out the worst in me. Which segues nicely into…
4. I can’t work for anyone who isn’t me. The thing about me is that everything is about me. And when it’s about someone else, I lose interest. With no real incentive (bad pay, no sick days, no benefits to speak of) to score the next goal, I get bored of the game. Not to mention, if I loathe myself this much, I likely loathe you even more. Which is why the only person I can work for is ME. I need ownership of every project in order to feel properly motivated.

Taking this office gig, which from the outside seemed like a nightmare, was actually the best thing I could have done. It helped me to once more remember the pros and cons of each environment – Out There and In Here. And it gave me valuable experience in large project management – dealing with clients as well as service providers, and making the whole thing come together. Prior to this, I was the provider. Now I know what it’s like from both sides.

I also learned that cube farms are the epitome of city life – people boxed together in small spaces, trying not to go mad.

So it’s time to get back to the basics, to strip off my dry cleaning and get back into my jammies, and focus on what satisfies me most.

Lisa’s gig is streamlining the home office process, so that you aren’t shoved into a corner of your dining room, buried under a pile of receipts.

For $12, Lisa’s book is jammed with little lists of small changes you can make NOW, which will reap big rewards in the longer term. What to keep and what to shred, how to avoid cluttering up your desk with tchotchkes that are marketed to make you feel more organized (but really don’t help at all), and management of your space and your time.

Every freelancer has to account for every minute of their working day to ensure that they maximize billable hours. If you spend client time searching for a specific folder of materials instead of working on the project at hand, you can’t bill your client for your disorganization.

For those that work at home (I’ve recently gone back to being a corporate whore – at least for a while), managing your office space and keeping it separate from your family life can be hard, especially if you have kids, pets, spouses and whatnot underfoot all the time. It’s too easy and convenient in the short term to put your personal and project files into the same cabinet, or keep your stuff strewn across the coffee table, but once you start mixing work with “real life,” chaos ensues. Little fingers grab stray papers, the dog knocks over your coffee cup, or your husband keeps wandering into your office space to find his passport or what-have-you.

Working at home means running a very tight ship, managing your time efficiently, and still making room to enjoy the experience of not having to commute every day to be part of the corporate grind.

Check out Working Naked: A guide to the bare essentials of home office life by Lisa Kanarek, and make your 2011 resolution to organize your home office!

Then while I was perusing their site yesterday, I noticed that they have regularly scheduled webinars (I hate that word, but whatever). I signed up for one this afternoon, about building your list. There’s still time to sign up – you don’t even have to be a customer (yet!).

Use this form to sign up for the 30-day, $1 trial. Totally worth it! And like I said, the service is top-notch.

Brass Balls Radio may be off the air, but I learned so much in the almost two years that my co-host and I did our weekly show. Learn more at Working Naked.

You know how much we love coffee, and coffee bars. We sit around the all day with our laptops, typety-typing away, watching the world and working ourselves into a caffeinated lather. Starbucks has finally made their wi-fi free, which is a huge help for our kind. Aroma Esspresso Bar, a favorite chain of mine, has always had free wi-fi, but no electrical outlets. It’s a short-term solution at best.

But today I discovered The Mad Bean. Located at 519 Eglinton Avenue West (just East of Bathurst), this place is paradise. The coffee and assorted beverages are about 60% less expensive than at Starbucks, the wi-fi is free, and there are electrical outlets everywhere! There’s pretty much one outlet for every chair in this tiny, independently-owned café.

The staff is friendly, the restroom is shining clean, and the chairs are comfy. Life is good here.

I am never leaving this place. Ever. You’ll pry my latte from my cold, dead hands!