There’s no doubt that taxes can get a lot more complicated for freelancers.
Freelancing has many benefits. Often, you get to work on your own schedule, creating a work-life balance that most regular employees would kill for. You also get to be your own boss, answering only to yourself and your clients.
There aren’t many downsides to freelancing, but one of the most obvious is taxes. In this post, we’re going to help you out by giving you some free tax advice. The more you understand about doing your taxes as a freelancer, the better you’ll be able to claim certain deductions and avoid penalties down the road.
Don’t let taxes become a blind spot in your freelance work. Read on and learn what you need to do.
Taxes for Freelancers, Explained
No matter how much you’re freelancing, if you get paid more than $400 by any one client, you have to file your taxes as if you were a business owner. This can seem daunting if you’re new to freelancing and used to an employer deducting taxes from their paycheque. For the freelancer, taxes always have to be on the mind so that you don’t get into trouble with the IRS.
In addition to the usual taxes that you pay, determined by your tax bracket, freelancers have to pay a 15.3% self-employment tax. This makes up the amount that you’d have to pay into Medicare and Social Security.
Traditional employees have to fill out a W-2 form, but freelancers will receive a 1099-MISC form for every client that pays over $600. Finally, because freelancers often have to pay more than $1,000 in taxes, they’re expected to pay quarterly instead of annually. If you underpay on your quarterly payments, you’ll have to pay up at the tax deadline.
One of the reasons many freelancers end up hiring tax experts is to take advantage of their knowledge of deductions and benefits. You can deduct a lot on your taxes as a freelancer, so long as it contributes to how you do business or your home office.
Here are a few deductions to look at:
- Rent or mortgage for the home office portion of your home.
- Internet and phone bills.
- Meals and travel when related to dealings with clients.
- Any publications and/or subscriptions that help you with your freelancing.
- Education, insurance, and advertising.
Do It Yourself or Hire Tax Expert?
As long as you’re prepared to put the time in to ensure that you’re doing your taxes correctly, you can absolutely do it yourself. Because of the extra complications, however, many freelancers decide to hire a tax expert. This allows them to focus on work and growing their business.
If you need help choosing a tax expert, Wealthability has written a valuable piece on what to look for and what to avoid. Getting the right tax expert on your side will make your life easier as you take on more and more freelance work.
Taking Tax Advice to Heart
Freelancers, take this free tax advice to heart. Understanding the importance of correctly doing taxes will make your freelance business run smoothly and prevent any headaches down the road. Your big decision now is whether or not hiring a tax expert is the right move for you.
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