Essential Tax Tips and Resources for Freelancers
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Freelancing offers many benefits, but it can also make your taxes more complicated. If you earn an income as a self-employed individual and work for clients on a contract by contract basis, it’s important that you file your taxes as a business owner. This is good news for freelancers looking to save some money at tax time by writing off expenses, but it also means paying some additional taxes. Planning ahead and staying organized are key to reducing your taxes and maintaining compliance with tax regulations. So here are some tips from HBS Financial Group to help you avoid headaches – and possibly an audit!
Structure Your Business Properly
Structuring your business can offer some financial protection and tax savings. Make sure you choose a structure that makes the most sense for your business.
- How you structure your freelancing business will determine how taxes are paid.
- Sole proprietorships – the default business structure for freelancers – are taxed on all profits earned.
- Both LLCs and S corporations benefit from pass-through taxation, meaning the business owners only pay taxes on their personal income.
Keep Track of Your Income and Taxes Owed
As a freelancer, you are responsible for organizing and reporting all sources of your income. You’ll also need to pay taxes quarterly, so it’s important to stay on top of your finances year-round!
- As long as your annual earnings are $400 or more, you must pay taxes on your self-employment income.
- Remember to set aside money to cover the self-employment tax, which represents the Social Security and Medicare taxes paid by employees.
- Google Sheets is a great tool for tracking your income as a freelancer.
- Be sure to make estimated quarterly tax payments based on your typical income.
Take Deductions to Reduce Your Taxes
As a self-employed contract worker, you can deduct business expenses to reduce your taxes owed. This can help offset the additional taxes that come with self-employment.
- Make sure you fully understand the home office deduction and how to report your work-from-home expenses properly.
- Remember to deduct the cost of office supplies, travel, marketing, memberships, and software, as long as they relate to your business.
- Freelancers can also deduct their health insurance premiums!
Of the many wonderful benefits that come with freelancing, paying taxes is not one of them. While it can be tempting to ignore your tax obligations for now and figure things out when tax season rolls around, it’s important to plan ahead. Start keeping track of your income, setting money aside, and recording your expenses now. You will thank yourself later!