As a freelancer, it’s essential to understand how your taxes work. By understanding the tax system, you can make sure that you’re keeping as much money as possible. This blog post will guide you to understand your taxes as a freelancer. We’ll cover everything from what types of income are taxable to deductions you can take advantage of.
Freelancing and Taxes
There are many benefits to becoming a freelancer and some responsibilities that come with it. One of the most important things to do as a freelancer is understanding your taxes and how to file them correctly.
The best way to determine what you need to do when filing your taxes is to speak with an accountant. They will help you understand the specific rules that apply to your situation. There are many different types of freelancers, each with its own tax rules.
However, there are some general things that all freelancers should keep in mind when filing their taxes. The most important thing is to make sure you keep track of all your income and expenses. This information will be necessary when it comes time to file your taxes.
How To Pay Taxes As A Freelancer
Whether you have a side gig or full-time work, you’ve started getting a job as an independent contractor a few years back, or this year, you will have to pay your income taxes. It’s not as complicated as it seems, and there are many online resources, including TurboTax Self-Employed, that can help you file correctly.
There are two ways to pay your taxes as a freelancer: estimated quarterly payments or the annual tax return. Most freelancers choose to make estimated quarterly payments, which are due four times a year. This is the best way to avoid a large tax bill at the end of the year.
You can find out more about estimated quarterly payments on the IRS website. The other option is to file an annual tax return due by April 15th every year. This option is best for freelancers who earn less than $400 per year from their freelance work.
Freelancer Tax Deductions: How To Save Money On Your Taxes As A Freelancer?
Receiving Payments From Your Clients
Clients may send Form 1099-MISC to report payments to contractors who work for them. If they pay you $600 or more during the year, they will send this form to the IRS, and you should receive a copy as well.
You can use Form 9465, Installment Agreement Request, if your total tax liability is less than $50K and if you agree to make installment payments over some time.
You can also use Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, to help you pay your taxes owed. This form will help the IRS determine how much you can afford to pay each month.
As a freelancer, there are many tax deductions that you can claim to reduce the amount of taxes that you owe. Some of the most common deductions include:
Home office deduction
Business use of your car
Meal and entertainment expenses
Travel expenses
Keep in mind that you can only deduct expenses related to your freelance work. Personal expenses cannot be deducted.
How To Pay Your Quarterly Estimated Taxes?
The easiest way to pay your quarterly estimated taxes is through the IRS website. Some forms you may want to check to include Form 1040-ES and W-40. You can also choose to make a payment by phone or mail if you prefer not to use the web.
The IRS has a tax calculator that will help you estimate how much money you need to set aside each quarter for your taxes. This is the best way to avoid getting hit with penalties and interest when it comes time for filing your return in April of each year
Filling Up For Tax Returns
The best way to fill out your tax return as a freelancer is by using an online service. This software will walk you through each step of the process and help you claim any deductions that apply to your situation. You can also speak with an accountant or tax professional if needed for more complex situations.
Forms like Schedule C and SE are specifically for freelancers. Make sure you use the correct format to avoid any penalties from the IRS.
Tax Requirements Freelancers Need To Pay Attention To
Even freelancers who earn a few hundred dollars each year must file taxes. The IRS will send you a penalty if you do not submit your tax return by April 15th of the following year.
A 12.4% SS tax (Social Security) and an additional 2.9% for Medicare tax have been imposed by the IRS on top of your net self-employment income. Forms like Schedule SE and Form 8919 can be used to help you with your taxes owed.
You will also need to keep track of any income not reported on a W-Form or other reporting document. This includes payments from freelancing sites like Upwork, Fiverr, and others and direct deposits into bank accounts without proper documentation.
Retirement Plan For Freelancer
One of the best things about being a freelancer is contributing to a retirement plan. This is a great way to save money for your future and reduce your tax bill each year. A Solo 401k is a plan that is specifically designed for freelancers and self-employed individuals.
You can contribute up to $54,000 per year to a Solo 401k or SEP IRS if you are age 50 or older.
Some of the benefits include:
Tax-free growth on investment earnings within your 401k account A Solo k may also be used as collateral for loans and other financing options in some cases. You can contribute up to $18,000 per year if you are under the age of 50. You do not have to pay taxes until retirement when withdrawing from the account.
There are many other benefits to using a Solo 401k as a freelancer. Make sure to speak with an accountant or tax professional to see if this is the right option for you.
Why Hire A Freelancer?
There are many reasons to hire a freelancer, but cost savings are the most common. When you hire a freelancer, you only pay for the services you need, and there is no need for benefits like health insurance or 401k contributions.
Freelancers are flexible
Can work remotely and with multiple time zones
More specialized skill sets and knowledge
Freelancers can be an excellent option for companies looking to save money but still want the flexibility and specialization of hiring an employee. Make sure to do your research before hiring a freelancer to make sure they have the skills you need and will be a good fit for your company.
Final Words
Many resources are available to help you file your taxes as a freelancer. The most important thing is to be organized and keep track of all your income and expenses throughout the year. This information will make filing your taxes much easier when April comes around.
If you need help with tax preparation or if you’re unsure how to go about the process, you can reach out to The Oasis Firm for help. We can help you make sense of the documents you need to file and get you started on preparing your paperwork right away!