This is a post from a member of the Freelancers Union community. If you’re interested in sharing your expertise, your story, or some advice you think will help a fellow freelancer out, feel free to send your blog post to us here.
Keeping track of business documents seems like an obvious obligation for a freelancer, but the “what”, “why” and “when” of this obligation remains a gray area for many. With Uber’s recent legal challenges concerning the future of the sharing economy, documented proof is the only sure-fire way to prove your tax status as a freelancer in the case of an audit.
But as a freelancer, do you know exactly what to keep, and how long you should keep it for? Leaving a paper trail is more important now than ever before, and Shoeboxed wants to make sure freelancers understand the benefits of keeping the following documents safe, secure and accessible:
1. Invoices (7 years)
Key business ledgers like invoices should be kept for a minimum of seven years, and for good reason: It’s the best way to protect contracts against a conflict with a client or project. Invoice statements also verify that you are subject to profits and losses, which is one of the factors in the Twenty Factor Test for independent workers. In the event of an IRS audit, invoices can serve as a testament to your tax status as a freelancer.
2. Travel Mileage Logs (3 years)
Like any good expense reporting habit, keeping travel mileage logs ensures protection against tax audits and business disputes. They can also be used for travel deductions, earning you up to 57.5 cents for every mile you claim. There are plenty of travel miles that qualify, including business travel to and from airports and hotels, errands and supply runs, travel to client offices, and to and from business meals. Don’t miss out on those valuable deductions!
3. Business Cards (Forever)
Being a successful freelancer requires agile networking skills. At any given moment, there’s a chance that you will stumble across your next great project, partner or client. Unfortunately, freelancers collect dozens of business cards every month that are habitually trashed or misplaced. Keeping business cards can help secure resourceful relationships; you never know when one of those contacts will come in handy. Working for multiple clients is also part the IRS’s Twenty Factor Test, and business cards may provide evidence that you are not controlled by a single employer.
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4. Service Advertisements and Listings (Forever)
Keeping copies of past service advertisements and listings is yet another easy way to formally and legally demonstrate “freelancer-ship”. The IRS says that making services available to the general public on a regular and consistent basis demonstrates autonomy in the nature of the work. It also confirms intent of work in the event that a client wants to claim you as a contracted employee rather than a freelancer.
5. Project Records (7 years)
Contractors are required to fill out form 1099-MISC, a detailed document that asks what you made for each individual job. Project documents, including the contract, change orders, correspondence, logs, monthly reports and schedules provide the specifications and technicalities needed not only to fill out a 1099, but they also provide detailed insight of your contract work to the IRS if your worker classification ever comes into question.
6. Tax Returns (3 years)
Due to the IRS statute of limitations, three years from the date of your tax return (or from the date of filing, whichever is later) is typically the standard time to keep business tax returns for tax-related business documents. The statute states that you have three years to file a claim for a refund, and the IRS has three years to appraise a tax if your income was not accurately reported. Even if these two situations don’t apply to you, keeping recent tax records protects you from any doubts that may be raised against your tax filings in the future. (Source)
7. Professional Licenses and Insurance Certificates (Forever, or until expiration)
Many jobs require freelancers to be professionally certified in a given field of work in order to complete a client project. Though the regulations vary state-by-state and city-by-city, having these documents on hand and ready to present to a potential client streamlines the hiring process, increases the probability of getting hired for the job, and may even increase your potential pay. Clients want to know they are legally protected and are hiring the right person for the job — it pays off to gain their trust from the get-go. (Source)
Freelancers are projected to make up more than 40 percent of the US workforce by the year 2020. Make sure you’re protected against new contract work laws and save your documents for secure and easy access. Shoeboxed offers mail-in services with premium plans, allowing freelancers to send in important documents and never have to worry about being able to find and provide legal supporting documents for their work.
As Shoeboxed's PR Manager, Claudia focuses on maintaining a positive relationship with the media and engaging users with the Shoeboxed product. She loves reading news about the latest startups and is a graduate of UNC-Chapel Hill.