|
Translators and Money - 2
Careful investing can yield greater rewards in the short and long run |
DEDUCTIONS
The art of paying taxes seems to be the art of paying as little as possible. Deductions are how you reduce your taxable income. The trick is to reduce your gross annual income as much as possible, without breaking any laws, of course (this section assumes that you are a law-abiding citizen).
After you get done with all the obvious deductions, including dependents, interest payments, other such common tricks, you have to ask yourself how to deduct the maximum for your business efforts.
One obvious trick is how to take the deduction. For instance, let's say you buy a new computer in 2000. First, you should consider doing it as late in the year as possible so that you don't have to wait long to get your money back. Then, you have to decide whether to take a straight deduction or depreciate the computer. Since computers lose so much of their value and utility so fast, you probably should take the straight deduction. Then, when you decide to replace it, donate it to a school, church, or other non-profit organization and take the deduction for the donation. If you sell any business equipment, you have to report it and pay taxes on it. The sale also effects your depreciation schedules. All in all, you save a lot of money doing by taking the straight deduction (at least as the tax codes stand right now). I suggest using the Section 179 deduction, because the paperwork is straight-forward, and the maximum amount ($17,500 as of tax year 1999) is more than enough to cover all conceivable expenses for a translator in a given tax year.
Another obvious trick is getting all the deductions owed to you. The IRS doesn't advertise its deductions. It's up to you to know what they are. So here are most of the deductible items which apply to translators.
Office supplies: This includes all paper, envelopes, pencils, pens, paper clips, staples (and stapler), light bulbs (for lights in the office), printer toner or ink, floppy disks and so on. You may say that this sounds like you are nickel-and-diming the IRS to death, but is there any reason not to, given that the IRS does just this to the American taxpayer? (Actually, to be fair, Congress sets the tax laws, the IRS is just a large collection agency. When we complain about the IRS, we should really be complaining about the Congress. Clever of our elected officials, no?) I suggest buying all your office supplies at once at the end of the year, then take the deduction. Get a receipt when you make your purchase and you're all set.
Utilities: I previously discussed deducting the business-use-of- home. However, one important deduction to remember is the cost of your business phone lines, or your long-distance phone calls if you use your home's only phone line for business. Every business call can be deducted. Keep a log of the individual phone calls if you use only one phone line in your home, or keep the phone bill receipts for your business line with the rest of your business receipts, then add up the total cost for the year. If you want to be efficient, use a spreadsheet to keep track of individual calls if you use only one phone line, or use an accounting software package to keep track of your phone bills if you have one or more dedicated business lines. And remember, business calls include faxes and modem transmissions.
Advertising: I've harped on the need to market so much that it must be clear that a translator incurs advertising expenses. These expenses are deductible. If you advertise in local papers, the phone book, using a web site, or simply market yourself by sending out mailings, you can deduct these costs. Keep records, including post office receipts.
Shipping: I regularly use Federal Express and the U.S. mail to send material to clients. The costs of shipping are deductible so keep records and take the deduction.
All of the above may sound like a nuisance to keep track of, but if you add it all up, you'll have hundreds of dollars worth of additional deductions which you can use to lower your taxable income.
INVESTMENTS
Translators should invest their money. Careful investing can yield greater rewards in the short and long run. Because translators are self-employed, there is no 401-K plan or employee IRA plan to take advantage of. Instead, translators can establish their own SEP-IRAs or Keogh accounts and take the appropriate deductions from their taxes, while simultaneously saving for retirement, something we all should be doing because Social Security will at best provide only a small part of one's retirement income. The federal government is currently sending out reports to all employed people in the United States, telling them what their Social Security income will be based on contributions to date. It will likely be an eye-opener for some of you.
INSURANCE: MEDICAL, DENTAL, AND LIFE
The cost of medical insurance is a factor of self-employment no one can afford to overlook. Very basic medical coverage can cost hundreds a month for a young, unmarried individual in generally good health. Add in a spouse and children, and medical insurance costs can rapidly a major annual expense. And as people age, insurance costs rise dramatically.
When considering the freelance path, consider these kinds of long-term costs. A translator who is married with children will find the cost of medical and dental coverage a major burden. Moreover, such translators might also want accident or life insurance, to protect their families. This will increase the red side considerably, especially in the face of current skyrocketing premiums. Such translators might do well to find in-house work or other work where the employer picks up part or all of the insurance costs.
Of course, medical insurance costs are a deductible business expense, though the percentage of the deduction varies from year to year. Since I started as a freelance translator, I've seen the percentage as low as 0% and as high as 50%. In other words, don't plan on a precise deduction every year for your medical insurance costs. Also, medical expenses above a set minimum can be deducted on a Schedule A (Itemized Deductions; used when you think your various personal deductions will exceed the Standard Deduction on your tax return). If you find all of this too complicated to figure out, try using tax preparation software (Intuit's TurboTax, Kiplinger's TaxCut, or what have you), or consult a tax professional.
CREDIT
Have you ever wondered about your credit rating? Just because you get lots of offers for credit cards in the mail does not mean that you have a great credit rating. And when you try to get credit to do something like purchase a house, you have to remember that those calculations are in part a function of your present and anticipated income. Since translators have a present income which fluctuates and no precise method to estimate their future income, credit does not necessarily come so easily, particularly for major purchases.
Imagine sitting down with a loan officer at a bank and requesting a mortgage to purchase a house. The officer asks you what you do for a living. You say translate. After you explain what that means, the officer asks you for income statements for the previous ten years. You show the officer your annual tax returns, invoice records, and investment records. The officer immediately notes the fluctuations from month to month and year to year and then asks you what you will be making in two or five or ten or twenty years. You answer as best as you can, but the officer will doubtlessly wonder.
Translators are not inherently a poor credit risk; however, their profession may make them seem that way. Therefore, you should be doing everything in your power to demonstrate that you are a great credit risk, so great that people come to you and offer you money all the time. You should always pay all your bills on time. Don't wait for reminders or warnings to come in for rent or utility bills, for student loans or car payments, or for any other money you owe. Don't bounce checks. Don't ride high balances on your credit cards. Don't default on student loans or any other loan. Credit companies keep track of every bill you ever pay and check you write (I know, I worked for TRW for a summer) and evaluate your credit history based not on the one-hundred bills you paid on time, but the one you didn't.
We all have heard the horror stories about people whose lives are ruined by a bad credit report. What we don't hear is how a credit report affects the average person. Because of the ill-defined, nebulous, and precarious nature of the translation profession, translators should strive to have immaculate credit reports, the kind that are carried around on gilt platters.
Tricks to improve your credit rating: Have lots of credit cards and use them at least occasionally, paying every bill on time. Make all loan payments on time or request a forbearance ahead of time. Do not use any of the low income assistance programs such as the ones Pacific Bell or Pacific Gas & Electric have (I live in California, but there are such programs all over the nation. I am totally in favor of them, but they don't help your credit rating). Write lots of checks and make sure they all clear. You get the idea.
EQUIPMENT
Translators need office equipment, including a computer with printer and modem, a fax machine, dictionaries and reference materials, and miscellaneous supplies. There are ways to avoid paying top dollar for these items.
Buy computers through mail order houses or through an academic discount at a university. If you live near a major computer firm, such as Microsoft in Redmond, WA, you can go to their bargain basement where they sell off their old equipment (often very powerful machines) at great prices. You can also consider buying used equipment, just keep in mind the advice offered in the Article: Translator's Home Office.
Buy software and other computer equipment such as floppy disks and toner or ink cartridges through catalog companies or the Internet. Outpost, Egghead, MacZone, MacConnection, PC Zone, PC Connection and MicroWarehouse all offer great prices on everything you'll ever need and will deliver it overnight for free, or sometimes $3 to $6, regardless of how large it is. Make sure to pick a company which is outside your state and thus avoid sales tax on the item.
Dictionaries and reference materials are often quite expensive. Make sure you buy only what you need. Try to find people who use it and see what they think. Try to borrow a copy of a reference book you are interested in before you buy it. If you can find one in a used bookstore, a university bookstore for instance, you can save 35% to 50%.
DOES IT BALANCE?
This is really two questions: the literal and figurative balance. Literally, if it doesn't balance, you're out of business and have to find something else to do, be it translating in-house for a company, or finding a new profession. Figuratively, you can ask if all the energy and efforts justify the rewards, financial and otherwise, of being a professional freelance translator.
I think freelance translation is worthwhile, both figuratively and literally. If you want to know what I'll think in ten years, ask me then. For now though, I like being a professional freelance translator because of the freedom and control it gives me over my professional life, because I make more money than most of my in-house translator friends, and because I seem to get more interesting work. To me, that's worth the time and effort.
(By Roger Chriss)
|
Translators and Money - 2. Careful investing can yield greater rewards in the short and long run - Translation Articles - Trally.com
|
