(301) 609-7515
The freelance life offers many benefits—being your boss, having the freedom to set your schedule, and, if you’re lucky, working from anywhere, anytime. But those benefits have a few complications, especially when tax time rolls around.
We've compiled a few essential tips for freelancers to help you prepare for tax season and stay on top of your finances year-round.
What Makes Tax Season Tricky for Freelancers?
Self-Employment Tax
Many up-and-coming freelancers are surprised to learn that in addition to paying regular income taxes, they must also cover a 15.3% self-employment tax to cover Social Security and Medicare taxes. This is because the IRS considers freelancers to be both employers and employees.
We recommend that freelancers set aside 25-30% of their income each month for tax purposes to avoid a hefty tax bill at the end of the year.
Estimated Tax Payments
Freelancers who usually make over $1,000/year must also make estimated quarterly tax payments. You must estimate your total income and deductible expenses for the year to calculate your estimated tax payments.
While the IRS Form 1040-ES will help you determine the amount you’ll owe each quarter, many freelancers find it helpful to partner with our experienced accountants. We can help you accurately estimate your income and expenses to ensure you make the correct estimated tax payments.
Streamlining Tax Season: Tips for Freelancers
If you’re feeling overwhelmed about your responsibilities as a freelancer, fear not. Here are a few strategies to simplify the process and ensure you’re always tax-ready.
Maintain Records
It is essential to maintain detailed records of all income and expenses. Software like Freshbooks, Wave, Zoho Books, and Quickbooks make tracking invoices and receipts much more manageable.
Keep Personal & Business Expenses Separate
One of the biggest mistakes we see freelancers make is operating out of a single bank account or intermingling their business and personal expenses. Open a separate bank account and credit card for everything freelance-related. This will make tracking and categorizing expenses much more manageable.
Deduct
Unlike traditional employees, freelancers typically have far more business expenses. These may include a home office, equipment purchases, software subscriptions, travel expenses, etc.
Keep all receipts to stay audit-ready. We also recommend consulting with our accountants. With over 40 years of experience, we can often find unexpected write-offs that freelancers miss.
Stay Ahead of Tax Season
Tax season can quickly become stressful if you wait until the last minute to get your financial records in order. It takes discipline, but we recommend setting aside time monthly to update your records, categorize your expenses, and review your financial situation. Trust us: this will help you avoid that last-minute scramble that turns tax season into a nightmare.
Let Us Take the Anxiety Out of Tax Season
With over 40 years of tax prep experience, we've helped countless freelancers streamline tax season. We'll look for creative ways to help you reduce taxable income, find hidden deductions, and even take advantage of tax credits. Our goal is to empower you and ensure you pay the least of taxes required by law. Contact DeBlanc + Murphy today to get started!
