freelancer taxes

Taxes for Freelancers: 10 Must-Know Tips for a Stress-Free Tax Season

The U.S. now has more than 56.7 million freelance workers and many don’t understand taxes for freelancers.

 

I’ve been a full-time freelancer since before 2010, so saying I do have a clue about this is an understatement BUT this is NOT tax advice. These are just tips and you should speak to a professional if you aren’t sure about something.

 

 

Before we get into the taxes for freelancers tips, I do want to answer a couple of important questions that I had when I first got started. I will also let you know why this matters.

 

Do I have to file taxes as a freelancer and how much money do I have to make to file my taxes as a freelancer?

 

As a freelancer, if your gross income is $400 or above, you have to file taxes. You shouldn’t assume that the IRS knows there are expenses that reduce your income. If $400 comes into your business PERIOD, you need to file or you can get into trouble.

 

While you won’t get in trouble if you don’t owe taxes or if the IRS owes you a refund, do you really want to bank on your tax skills? Just file.

 

When I say trouble above, we are talking fees out the wazoo and the longer you take to take care of those pesky taxes, the more those fees are going to be. #facepalm

 

Are freelancers self-employed?

 

You may have heard that the self-employment tax is 15.3% and you want to know if you’re self-employed as a freelancer. Yes, you are self-employed as a freelancer.

 

 

 

Now that you’ve got the answer to some of the most commonly asked questions when it comes to taxes for freelancers, let’s get into those tips!

 

1. Know Your Business Structure When Dealing With Taxes for Freelancers

 

As a freelancer, you need to know your business structure to know how you’ll be paying your taxes.

 

While business structure can be confusing when you’re starting out, it’s important to get this right as early on as possible.

 

As a sole proprietor, you are the one that is responsible for all profits and debts.

 

As a partnership, you’re in partnership with someone and it can either be a general or a limited partnership.

 

As a limited liability company, you get the benefits of a partnership without being personally reliable like you are as a sole proprietor.

 

As a corporation, it’s a little more complicated and most freelancers don’t opt for this structure, but if you want to — have at it. Just make sure you understand what it entails.

 

2. Keep Track of All of Your Income

 

Organization is your friend. Don’t fight it.

 

Whether you keep records physically or you have online records of your income, make sure they are organized so you can easily access them. When tax time comes around, you need to be able to easily show where your money came from and how much it was.

 

You may have some 1099s from clients but if you’re like me, you might get paid through PayPal or other payment methods.

 

While PayPal does give 1099s to some of its users, you have to have at least 200 transactions and a minimum income amount to get a PayPal 1099.

 

If you can’t get a 1099 from PayPal to show your income, go into your transactions and filter all income transactions from clients and then screenshot each of those pages of transactions as proof of income.

 

3.  Use a Tax Software or Accountant to File

 

Goodness me, please don’t try to file your own taxes. Just don’t.

 

Why not?

 

Because having a tax professional or a tax software on your side to defend what’s on your taxes in case of an audit can really put your mind at ease.

 

If you do your own taxes, your only defense is that you didn’t know and most of the time — that isn’t going to fly.

 

4. Ready Yourself for the Self-Employment Tax

 

If you weren’t aware of the 15.3% self-employment tax, this can come as a real punch in the mouth.

 

You can pay these taxes quarterly, so it makes it a little easier going out or you can pay it at the end of the year in a lump sum.

 

5. Consider Making Estimated Payments

 

As we stated in the point above, you’re going to have to pay self-employment taxes. Each quarter, you can pay estimated payments which make it a lot easier for you at the end of the year.

 

On April 15, June 15th, September 15th, and January 15th, you can pay what you estimate your taxes to be for that quarter. As we said above, you don’t have to do this but if you don’t think you can stomach paying the whole bill at once, this can be a good option for you.

 

6. Understand Deductions

 

If you don’t understand what you can deduct from your income for expenses, you might be overpaying in taxes. Here is an example of some things but don’t forget to ask a tax professional if you aren’t sure.

  • Marketing
  • Advertising
  • Travel for business
  • Office furniture
  • Computers
  • Software
  • Services
  • Supplies

If you have other expenses that you believe are related to your business, don’t assume since this can get you into big trouble if you’re audited.

 

7. Consider Claiming the Home Office Deduction

 

Since I live in an RV and don’t have a dedicated space, I’m not able to use the home office deduction, but you should look at the requirements and see if it is available to you.

 

8. Know If You Will Contribute to a Retirement Account

 

You might not feel like you’re making enough money to contribute to a retirement account right now and you might be right. If you can’t survive off your income and contribute then at least keep it in mind for the future.

 

There are a few types of retirement accounts you can consider as a freelancer when you’re looking at taxes for freelancers and investing in your future. These are:

 

  • Solo 401(k)
  • SEP-IRA
  • IRA

 

 

9.  Categorize Your Business Expenses

 

I decided to put this at the bottom since most people aren’t going to go to all this trouble and will probably just drop a box of receipts on their CPA’s desk, but as a best practice, you should categorize your business expenses.

 

The better your records are, the more tax savings you’ll be able to enjoy.

 

10. Consider Using an HSA (Health Savings Account)

 

Having an HSA allows you to pay for qualified medical expenses on a pre-tax basis, which means that you’ll be able to cut your tax bill.  Before you get excited, you need to research how HSAs work and how they can help you.

 

Now You Understand Taxes for Freelancers

 

Good on you for getting through all of this and getting a good grip on taxes for freelancers. Now it’s time to go out and take care of those taxes.

 

Do you want to learn more about personal finance and other important topics? This site is full of articles that are well-researched and brought together to help you live a happier and healthier life.

 

Check out some of the other articles on the site, drop a bookmark and come back soon.

taxes for freelancers

8 thoughts on “Taxes for Freelancers: 10 Must-Know Tips for a Stress-Free Tax Season”

  1. This is great information for freelancers. Often a freelancer starts out and enjoys a higher pay rate than workers with employee status, but freelancers need to be aware that they will need to plan for tax season and potentially estimate tax payments if nothing is being withheld automatically. Thanks for this helpful advice to help freelancers plan and sail through tax season with ease!

    Reply
    • Aly,

      Yes! Right on.

      I know more than a few people that have had to create payment plans with the IRS because they didn’t plan on paying so much tax at the end of the year. :-O 

      Reply
  2. Wow! This is really coming strange to me though. I never thought that  freelancers would be paying any sort of taxes. Though I had worked as a freelancer before but I must say that I have never truly for once given so much thought to the obligations of paying tax. Thanks for sharing this details on it

    Reply
    • Rodarrick,

      This is a specific guide for the U.S., so I’m not sure if you’re living here? There are so many different laws for different places. Please make sure to check the laws where you are, but generally anyone making money has to pay taxes. In the U.S., we get to pay a big self-employment tax because we don’t have an employer to split taxes with. Yay… 

      Reply
  3. Great topic this time of year.  Many will thank you for this knowledge.  Self employment tax is the worst but worth it to be your own boss.  Right off home expenses is a great way to lower you taxes.  Anything you can write off make sure you keep a receipt.  Have you ever been audited?  Do you prepare your own taxes and if so which software would you recommend.  Very informative post.  Anyone with a business should review this information and plan wisely.  Thank you.

    Reply
    • Jon,

      Thanks! It can be so difficult to navigate all of the rules and my head sometimes wants to explode but I do pay someone to do my taxes. I use someone that I trust and I know keeps great records in case I am audited.

      I have never been audited BUT I don’t doubt that it will happen as my income keeps growing. Audits can happen years later, so keeping our records is important. 

      Reply
  4. Hello Jessica, I read an article few hours ago that just scratched the surface of taxes for freelancers and men I was really amazed that as freelancers, we are to pay taxes. So I have gotten a great depth of knowledge about taxe6fir freelancers and how I can go about arranging my information in preparation for the payment of the taxes and even how I can save some money on taxes. A really nice guide. Thanks for sharing.

    Regards!

    Reply
    • Thanks for stopping by and I’m glad the post was helpful. Understanding taxes is important as freelancers. If we fail to pay taxes, we can get into big trouble and let’s not do that. 🙂 

      Reply

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