Today, the U.S. job market shows that it will have 86.5 million freelancers by 2027. This means that more people than ever will work for themselves, and be their own bosses.
Often, that means freelancers have multiple streams of income. Thus, things can get difficult quickly. Different jobs may require different equipment or skill sets, each client or company has unique policies/standards, and of course, taxes.
Freelancer tax regulations vary from your traditional 9-to-5, salaried income. Because of this, we’ve created this guide to fill you in on all of your freelance tax must-knows. Read on for more!
What Are the Freelancer Tax Basics?
First, know that you must pay taxes on your earnings if you make $400 or more per year. This means that you should save around a quarter to a third of each paycheck. It ensures that you can cover income and self-employment taxes.
The self-employment tax lies at 15.3%. Such money goes toward Social Security and Medicare. Remember that freelancers act as their own bosses, so their self-employment tax forms treat them as such.
When Do You Pay Taxes?
When you pay taxes depends on how much you make. Generally, the IRS recommends 4 times a year if you expect to earn at least $1000 in 1 year. Normal paychecks from a traditional 9-to-5 deduct taxes straightaway, but freelancing bills come in full without such a deduction.
You can use Form 1040-ES to estimate your quarterly taxes. You pay extra at the end of the year if you underestimate, while the IRS refunds you if you overestimate. Remember to file a tax return by April 15 each year!
What Counts as Tax Returns?
Self-employed workers may also file tax returns. Different types of freelancers require different equipment that makes them eligible for different amounts of money returned. Tax returns take into account various factors that allow you to succeed at your job, but reduce your income.
Some examples might include:
- Travel expenses
- Workspace supplies
- Computer software, hardware, or other equipment
- Marketing/social media expenses
Document bills, receipts, and invoices to reference in the future. You may also consider a separate checking or savings account for your freelancing work if you have another traditional job on the side.
Take Advantage of Tax Professionals
Tax services have professionals who can help you sort through all of those self-employment tax forms. They can answer any remaining questions you have on when or how often you should pay taxes, what forms you should fill out, and what else you can list for your tax returns.
Alternatively, freelancers can benefit from tax advisors if they have regular jobs. Some people consult professionals for both jobs. Consider whether a tax professional can help you!
What to Say About Taxes for Freelancers
Overall, we can conveniently simplify the freelancer’s tax life. It all comes down to the proper knowledge/research and tight bookkeeping/organization. We can even consult a professional if we still feel a bit unsure.
Whether you freelance full time or freelance on the side, everyone deserves a positive experience for such a taxing time.
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