You can work from home as a freelancer and set your hours. While these advantages entice many people to work from home, there are other considerations. When you operate your own business, you must always meet your deadlines.
Even if the client doesn’t pay you on time and you have to take short term loans from Payday Depot. Keeping your documents intact and being aware of your tax and business requirements can help you file your taxes accurately and on time.
What is a Self-Employment Tax?
A freelancer earning $400 or more per year is considered self-employed by the IRS and must file as such. Besides your ordinary income taxes, you must pay a 15.3% self-employment tax on top of your regular Social Security and Medicare taxes.
Paying Taxes as a Freelancer
The IRS suggests quarterly payments for tax debts over $1,000. Because freelancers’ taxes are not withheld annually, they must estimate and pay quarterly. So, how do you calculate? That is a great question. If your income from freelance work is merely a few thousand dollars or less each year, you can simply disclose it on your tax return.
Form 1040-ES can help you project your income and calculate your taxes. If you underpay your tax, you must make the difference when you complete your annual tax return. Freelancers have until April 15th to file their taxes. You will get a refund if you overpay your taxes.
Keeping Track of your Freelance Income
Firms paying over $650 should send you a 1099-MISC.
For example, if you covered a lot of corporate events for a local company, you should get a 1099-MISC.
Say your clients pay via PayPal or another online payment option. Online payment systems may issue a 1099-K. However, not receiving a 1099-MISC or 1099-K from a customer does not absolve you. All self-employment income must be reported on Schedule C to the IRS.
Schedule C indicates freelancing income and expenses. Part I details all freelance earnings for the year. For clients who did not provide 1099, this includes funds not yet reported. Their spending will be explained to determine if they qualify for any tax advantages.
Tax Breaks for Self-Employed
Reduced taxable income saves hundreds in taxes. A freelancer’s claim! But many self-employed professionals miss out on tax incentives and end up. Owing taxes! Freelancers can deduct “ordinary and indispensable” business costs.
Popular freelancer deductions include:
- Advertisements and commercials
- Office goods
- PC hardware/software
- Dinners and trips
- Home office Utilities
Keeping all receipts and invoices will help you establish that the expenses were company-related, saving you money on taxes.
You can track your expenses by opening a second bank account. Also, it’s an excellent way to track your expenses for tax purposes.
Taxes are complicated enough without adding many sources of income. One of the worst things a freelancer can do during tax season is doing it by themselves. Work with a reputable tax specialist who will explain your tax situation and ensure you get all of your deductions.