It can be the most dreaded part of freelancing — tax preparation. But taxes don’t have to bring nightmares.
It only takes a bit of knowledge to maintain an up-to-date and accurate tax status as a solopreneur. Check out our top three tax tips that freelancers should know.
3 Must-know tax tips for freelancers
1. Make quarterly payments.
Quarterly tax payments can come as a surprise to many freelancers who are used to previously paying taxes once a year. As a freelancer, however, your employer is not withholding taxes from your paycheck, so that’s your job.
To remain in good standing with state and federal governments, make estimated payments four times a year:
- April 15
- June 15
- September 15
- January 15
But are you forced to pay quarterly taxes? Not really. “Even though there is a penalty associated with failing to pay quarterly, freelancers are not required by law to make the payments,” said Kariem Bassiem, an enrolled agent at Tax-Masters, Inc., a boutique tax accounting firm in the Washington, D.C. metro area.
The non-payment penalty is around 5 percent, so it’s up to you if it’s worth taking on the fee to hold onto your money for more of the year.
2. Track everything.
Whether you keep a Google sheet or use a paid program like Quickbooks, make sure you are tracking your expenses and income closely. You can get back over 40 percent of all your business expenses. “For example, a $1000 computer will really only cost you $600 out of pocket,” Bassiem said.
Bassiem pointed out two areas you might not think about deducting, like:
- Auto expenses, like mileage and interest on a car loan
- In-home office expenses, like insurance, home repairs, or utility bills
Try to sit down at least once a month to input these items, or it can become challenging to remember where your money went. The IRS has a helpful breakdown of the things you can deduct for your business.
3. Get professional advice.
Above all, seeking professional tax help is the most vital step you can take as a freelancer who wants to stay in the clear with authorities. “Self-employed people have relatively complicated returns and are frequent targets of IRS audits,” Bassiem said.
Take care of your taxes by consulting with a knowledgable professional. To find an accountant who is a good fit, first search online and find a firm or solitary accountant with plenty of positive reviews. Then you can check that they are a licensed accountant by using the CPA Verify Tool or searching through the AICPA website.
If that all checks out, you can meet them in person. You should feel like they have your best interests at heart, and there’s no need to continue using someone you don’t like. The best accountant has rates that fit your budget, is highly professional and is willing to answer all of your questions.
If you follow these guidelines, you’ll be on your way to getting a full grasp of your taxes this year. And for more guidance in navigating the world of freelancing, don’t miss ClearVoice’s Freelancing Tips.
Disclaimer: This article is meant as a guide for informational purposes only. It does not constitute a solicitation or provision of legal or financial advice, nor does it establish a client-attorney relationship. Please consult a professional in making any decisions for your business.