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If you’re a freelancer or self-employed worker, check out our tips to navigate tax season.
Key points
- Freelancers can set themselves up for a stress-free tax season by improving their organizational skills and implementing better financial habits.
- Use a professional if you need to, and get ready for next year.
Tax season looks a bit different for freelancers. Unlike W-2 workers, freelancers are considered contractors, and income taxes aren’t taken out of their pay. That means they’re responsible for making tax payments throughout the year. If you’re new to freelancing, you may wonder how to better set yourself up for success.
Whether you’re a gig worker, contractor, or own a company, you need to set aside enough money to pay your local, state, and federal income taxes and self-employment taxes and make quarterly payments. Otherwise, you’ll owe a lot of money all at once.
If you’re in need of some pointers, check out these freelance-friendly tax tips.
1. Keep accurate income records
As a freelancer, you have to report all of your income. If you have multiple side hustles, gigs, or clients, you have to track multiple income streams. Document every payment with care to make tax time easier.
One option is to use software made for freelancers and self-employed workers. Another is to use a spreadsheet to track every payment you receive. When April rolls around, you’ll be thankful that you kept such accurate records as you complete your tax return faster.
2. Track business expenses
As a self-employed individual, you can deduct eligible business expenses. According to the IRS, business expenses must be both “ordinary and necessary” to qualify.
Here are some examples of potential business expenses to deduct:
- Home office supplies
- Advertising costs
- Continuing education costs
- Credit card convenience fees
Business expense deductions reduce your taxable income, meaning less tax liability for you. Keep accurate records of your expenses, and keep copies of receipts. If you’re not already doing this, now is an excellent time to start.
3. Make quarterly payments to avoid penalties
Freelancers and self-employed workers are required to file an annual income tax return and make estimated quarterly tax payments that include self-employment …….
Source: https://www.fool.com/the-ascent/taxes/articles/6-tips-for-freelancers-this-tax-season/