6 Tax Tips for Freelancers
There are several benefits to being self-employed. You decide your own work hours. You can work in your pajamas. You are your own boss. With this extra freedom also comes extra responsibility. Among other things, as a freelancer, you are in charge of doing your own taxes. It may be wise to look into a free tax calculator since you have to take money out just as an employer would so you don’t owe the IRS a heaping amount of money at the end of the tax year.
If you are a freelancer or even thinking of becoming one, then you will want to acknowledge the less fun side of it. You are not alone and there are valuable resources available to you. Here are 6 tax tips for those who choose the freelance route.
1. Be organized. It’s hard to input every paycheck you get, especially if you are receiving them from multiple sources at different times throughout the month. It’d be easier if you were paid every other week like the normal 9-to-5 job, but in the world of freelancing, that’s typically not the case. Use a software system like YNAB or even use your Google Drive to keep your billing and payment information all in one place. It doesn’t matter what system you use as long as you keep it as streamlined as possible.
2. Track receipts. In the same way you keep your other financial documents organized, track your receipts and file them under different business expenses. You can deduct expenses for using your car, a room in your home, and even coffee or dinner out, if you can associate it with your business. Without proof of receipts, you won’t be able to claim certain items as business deductions that you otherwise could. It may seem tedious, but the small effort is worth it in the long run. You don’t want to have to backtrack every dollar spent throughout the whole year. To make it even easier: go digital and keep all your receipts online.
3. Pay quarterly. Even if you do not hire a tax professional to help, you can download quarterly tax documents from the IRS website and set up your payments. This is an estimate of how much in taxes you believe you’ll owe at the end of the year. Much in the same way as an employer would automatically withhold taxes, you should “withhold” money in order to pay your quarterly statements. This helps you avoid facing a huge IRS bill at the end of the year.
4. Hire a professional. It can be difficult to determine how much money you will need to save or how you should calculate your quarterly payments. It is definitely worth it to get help from a tax resolution service because they can likely save you more money on your taxes. They will let you know what you can deduct and what kind of money you will owe come Tax Day. This amount can come as quite the surprise if you’re unprepared for it. Be upfront and honest with your tax advisor so that they are in the best position to help you.
5. Prepare for the worst. If you are a freelancer, but did not plan for your taxes and are facing a big payment, then call on experts to help you find a solution. Many times if you’ve filed your taxes on time in the past, you can request a payment plan from the IRS. There is a form you must fill out and you will be notified whether you have been approved. Tax debt is not fun, but there are resolution services and tax advisors that can help you climb out of the hole.
6. Set new expectations. As a freelancer, payments ebb and flow and monthly income can fluctuate dramatically. Do some research on the percentage of taxes you will owe to the IRS. Having a ballpark idea can help you avoid facing problems in the future. The things you learn as a self-employer will also create solutions that eliminate the same types of problems from happening again in the future.
A Freelancers life definitely has its ups and downs. With a little bit of preparation, you can help put your mind at ease that when it comes to the IRS. Remember to utilize what’s out there to keep your finances organized and be sure to do some research. What’s your favorite thing about being a freelancer? What’s your least favorite thing about being a freelancer?
6 Tax Tips for Freelancers was first seen on Mompreneur Media