A Beginners Guide to Filing Taxes as a Freelancer

hand writing the word tax in passbook

Filing taxes as a freelancer is a must. Just because you don't clock into a job, that doesn't mean you don't have to do your duty of paying income taxes.

Depending on the state you live in, you may need to file state income taxes as well as federal income taxes.

Keep in mind that as a freelancer, there are more things you have to think about than if you're an employee. We're here to help you. Continue reading this article to learn more about filing taxes as a freelancer.

How Much Money Do I Have to Earn to Need to Pay?

If you're doing very minimal work as a freelancer, then you might not need to pay taxes. When we say minimal--we mean minimal as in-- $400 or more in a given year.

To keep yourself out of trouble when the taxman comes knocking, it's wise to set aside 25 to 30 percent of your paycheck every time you get paid. It can be helpful to create your own paystubs, so you can give yourself an idea of what's happening with your money.

There are pay stub generator free versions you can find to help you put together templates that will give you what you need to visualize what is going where.

The Dreaded Self-Employment Tax

It might have sounded like a good gig when you thought about working for yourself. There are some things that might make it a little more difficult.

One of the things that make working for yourself a little on the frustrating side is having to pay out 15.3 percent of what you owe to cover your medicare and social security.

When you work a normal job, these things come out of your paychecks automatically, but your employer covers half of the taxes. When you're a freelancer, there is no one else that pays the other half. You pay both halves.

Your relationship is two-fold. You are the employer and the employee when you're a freelancer.

It's best to speak with your tax professional and ask them about your situation. Every freelancer has a little bit different situation going on. Some people make more money, some make less, and you may have fewer or more deductions than the next guy.

Paying Freelance Tax

If you think you're going to owe more than $1,000 in taxes that year, you should pay quarterly taxes. If you do need to pay the IRS quarterly, those date deadlines are July 15th, June 15th, September 15th, and January 15th.

Keep in mind that if you don't pay what you owe the IRS during the year, you'll need to pay the government when you file your annual tax return.

Unless there is something major taking place like COVID-19, the deadline is April 15th. Keep in mind that if you do find yourself in some trouble, you can file for an extension and see how you can keep out of hot water.

How to Keep Track of Your Income

When you are working as a freelancer, most of your clients will give you a 1099-MISC if they pay you over $400.

You should know that is your clients pay you through online payment systems like PayPal, you may not get a 1099-MSIC. You may get a 1099-K, but only if you make more than $20,000 or if they pay you more than 200 times.

Keep in mind that just because you didn't get a form, that doesn't mean you don't have to pay taxes. That means you still need to report your income through a Schedule C.

Make sure you report all of your freelancer income. Even if you don't get a form from your clients, you need to be able to show that you got the money.

Before you file, make sure you list any expenses you have for your business. If you have $5,000 or lower in business expenses, you can use a Schedule C-EZ that makes things a lot easier on you.

How Do Self-Employment Deductions Work?

When you factor in deductions, you might be able to hit a lower taxable income, which could reduce your tax bill and allow you to save money. Since you're a freelancer, you have the ability to claim a lot of different deductions.

Most people don't even know about the tax deductions they are able to take. If you don't know what you can deduct, you're paying more money in taxes than you really have to.

If you aren't deducting expenses for things like your home office, utilities, travel meals and meals at business meetings, supplies for your office, and your marketing and advertising expenses, you're missing out.

You do need to make sure that you keep good records so that you can prove everything you claim. Most people have problems keeping track of their income and their expenses. If you find this is you, you need to figure out the best tracking system for you, and you might even consider hiring someone to help you.

If you do better with technology, you can scan your receipts and organize them online in Google Docs, Dropbox or some other easy to search platform. Of course, you can always opt to go old school and put everything in a filing cabinet in your home office.

Becoming a Pro at Filing Taxes as a Freelancer

Now you know more about filing taxes as a freelancer. Instead of feeling like you're lost in the dark, it's time to get a handle on your tax situation.

If you fall behind on taxes, it can take you a long time to get everything back together again. The government isn't forgiving, so make sure you don't put it off.

Do you feel like you need more information about filing taxes and other important topics? Continue through our site to learn more.


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