Helpful Tax Tips for Freelancers: Organizing, Filing, and More

This is a guest post by Amy Boyington.

If you asked me what the one thing that I was most scared to tackle as a freelancer when I first started my business was, I wouldn't have taken a millisecond to hesitate with an answer: Taxes. When you're an employee, your employer (technically, the accounting department) handles the payment of your taxes for you while you just worry about filing everything by April of next year.

Taxes for freelancers aren't quite that simple, and they can even seem overwhelming when you're first starting. I promise, though, that the longer you freelance, the easier it becomes.

These tax tips for freelancers are ones I wish I knew when I was a newbie. Learn how filing taxes is different as a freelancer than an employee, how to stay organized through the year to make filing more manageable, and how to make filing as painless as possible every year:

How Do I File Taxes as a Freelancer?

As a freelancer, you're self-employed, whether you do it part or full-time. Self-employed people don't file taxes the same way as those with regular jobs whose employers send a portion of their checks to the appropriate tax departments.

Instead, you'll need to pay taxes quarterly. The IRS understands that pay for freelancers can be inconsistent, making it cumbersome to pay taxes with every check, PayPal payment, or direct deposit from a client. Paying four times a year is a good way for the IRS to make sure you remember your tax duties and to keep you on track with taxes throughout the year.

You'll pay quarterly estimated tax to the IRS, your state, and your local district if it requires you to do so. Your estimate will be based on what you expect to make for the year, so it could vary with each payment. However, you're always free to adjust your amounts for the next quarter if you think you're paying too much or too little.

Oh, and don't forget about self-employment tax. Your employer takes out taxes for social security and Medicare automatically from your checks. An employer is responsible for half the cost of these taxes, while you pay the other half with each check.

Without an employer, you're responsible for the full 15.3%. The IRS does let you deduct half of what you're responsible for from your income, but you still need to consider this tax when you pay your quarterly taxes.

What Should I Do Throughout the Year to Stay Organized?

Staying on top of all your business finances all year round is the key to succeeding at this tax thing. These are a few things that help keep me on track toward a good tax year:

Separate EVERYTHING

Preferably, before you even begin working as a freelancer, you've already set yourself up with separate accounts for your business and personal use. However, the first year of freelancing can get a little fuzzy if you're doing part-time freelance and part-time employment. As soon as you venture into full-time freelancing, it’s a good idea to separate the two.

That means separate checking accounts, separate credit or debit cards, and separate loans. Although the IRS does allow for freelancing income to run together with your personal finances, to a point, it will make it so much easier for you to find records you might need when it comes time to file if you have the two in separate places.

While you're at it, figure out a filing system for receipts, invoices, and other paperwork that helps you keep physical documents separated too.

Grab Forms and Practice

One of the best things I've learned to do to estimate my taxes is to grab tax forms for the current year for federal, state, and local taxes (you can usually find these on their websites—here are the IRS forms) and fill them out. It's helped me learn more about how my freelancing taxes work and how much I should expect to save for taxes.

I sometimes redo these forms throughout the year if I have some months with significant increases in income, just to make sure I'm saving enough. If your income doesn't vary much each month, you likely won't need to do this.

Portion Your Income for Taxes

Most of my clients pay in deposits at the beginning of each month, so I've gotten into the habit of taking out the 25% tax portion of my income on the first business day of the month and sending it straight to my account where I hold my tax money. This process makes it impossible for me to forget about setting it aside and I love not having to worry about it the rest of the month.

If your payments are sporadic, you can take 25% (or whatever number you've calculated) out of each payment and set it aside. I recommend setting up a savings account that allows transfers from your bank to make it easy to separate your tax-only cash.

Keep Track of All Income and Expenses

Set up a spreadsheet at the beginning of each year to track your income and expenses, line by line. You can even find free templates online that you can tweak to suit your needs. I keep track of every single payment and who it was from, plus every monthly expense—tools, services, utilities, etc.—related to my business for that month.

Remember that things like your home office space, a dedicated business phone, and office supplies (if solely used for your business) are all allowable expenses, so keep track of these on your sheet and file away receipts as soon as you get them.

Filing Taxes as a Freelancer: Important Tax Tips for Freelancers

You've done your best to keep your records in order all year, and now it's time to file. These tips can help you go into tax time stress-free every year:

Hold Off on Filing Until Mid-February

I've heard so many horror stories from freelancers who made the mistake of filing taxes in January, thinking they have all the paperwork they needed. Their healthcare statement already came, and they had all of their income and expenses tracked in their business spreadsheet.

Except, they often forget about all the 1099-Misc forms they will probably get from clients. Clients are required to send you a 1099-Misc if you completed at least $600 of work for them for the tax year. They have until January 31st to do this, and you should allow for about two weeks for delivery.

Long story short: Wait until February to file. The later, the better. I know it's tempting to (hopefully) get a refund back, but it's not worth the hassle of amending your taxes if you left one or two out because clients waited until the last minute to send out 1099s.

Don’t Forget to Take Credit for Your Health Insurance

You want every possible deduction you're allowed to take to reduce your tax bill, especially if you're concerned that you didn't pay enough with your estimated taxes. Freelancing's downfall is that you don't have access to employer health insurance, so you'll have to find a plan on your own. However, the other side of the coin is that your monthly premiums may be tax-deductible.

If you pay for health insurance for your spouse and kids, you can deduct those costs as well, but you can't claim any more than you've entered as your net income for the year.

Use Tax Software (or an Accountant)

I've never done my freelancing taxes without using tax software, and I don't plan to. Tax software helps me catch mistakes that I wouldn't otherwise catch on my own to give me the lowest possibility of an audit and make sure I get the most back as I can. Bonus: If you use accounting software like QuickBooks Online to track your income, you can easily import that information into the TurboTax software for even simpler filing!

When you can afford it, opt for a professional accountant with experience helping freelancers. They can help you sort out your paperwork and know what to do to avoid the wrath of Uncle Sam as much as possible.

Taxes for freelancers can be confusing and complicated, but the more organized you are, the easier they become. What’s your most significant pain point when it comes to filing taxes as a freelancer? Let us know in the comments.

Disclaimer: I'm not a certified CPA and this does not constitute legal or accounting advice.

Amy Boyington is a freelance writer and blog manager for lifestyle entrepreneurs and businesses. After working a few unfulfilling 9 to 5 jobs, she took it upon herself to create a career path that meshed with her family life. She now works with clients all over the world in a flexible freelance career that helps her be both a businesswoman and mom to her two children.

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