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How to Properly File Taxes As A Freelancer

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Freelancing offers the freedom to choose your projects and work on your own schedule, but it also comes with managing your taxes.

June 18, 2024
Author: NCH

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Freelancing is an excellent way to earn a living without the restrictions of a traditional office job. You get to set your work hours, choose projects you’re passionate about, and be your own boss. The flexibility it offers is unmatched.

Unfortunately, these perks come with its own set of challenges. Unlike normal employees, freelancers are expected to manage and pay their taxes. This task can be overwhelming, especially if you’re a first-time filer, but the good news is we’re here to help.

Below, we’ve created a comprehensive guide on how to file taxes as a freelancer and compiled a few tips on how you can effectively minimize your tax burden.

Understanding Freelance Taxes

Before we teach you how to do your taxes as a freelancer, let’s first discuss the basics of freelance taxes.

Independent workers who earn at least $400 from freelance work must report all the income they’ve received in their personal income tax returns using Form 1040.

Whether you’re a seasoned freelance web developer or a weekend dog walker, any income earned from freelancing must be included in your personal income tax returns.

How to File Taxes As A Freelancer

There are four steps to filing your taxes as a freelancer:

Understand Your Obligations

Aside from the standard income taxes, freelancers like you must also pay self-employment and even estimated taxes.

Self-employment taxes cover your Social Security and Medicare taxes. This burden is typically divided between the employee and the employer. But since the IRS considers freelancers employees and employers, they must pay for the entire 15.3% rate.

Meanwhile, the estimated quarterly tax payments only apply to freelancers who expect to owe more than $1,000 in freelance taxes for the current tax year.

Know Your Forms

There are several tax forms freelancers use when doing their taxes:

  • Form 1040: Form 1040 is the primary form to report income tax returns. It typically includes other attachments, such as your Schedule C and SE forms.
  • Schedule C: Schedule C is a separate form to report your net income.
  • Schedule SE: Schedule SE is another separate form to calculate and pay your self-employment taxes.
  • Form 1099: 1099 Forms document your client’s payments for your freelance work. It’s the equivalent of the W-2 form employers give to their employees. These forms come in different variations depending on the type of income earned. For instance, Form 1099-NEC is for nonemployee compensation, while Form 1099-MISC is for interest and dividends.
  • Form 1040-ES: Form 1040-ES calculates and reports your estimated taxes.

Understanding these forms is the key to a smooth filing process. By knowing which documents you must use, you’ll have a much easier time completing your tax returns.

We also suggest you check out the IRS guides and instructions on properly filling out these tax forms. This way, you can avoid mistakes and ensure your tax return is complete.

Memorize Your Deadlines

Freelancers have the same annual tax return deadline as everyone: April 15, 2024. But if you have estimated quarterly taxes, you need to make payments on the following deadlines:

  • 1st Quarterly Payment: April 15, 2024
  • 2nd Quarterly Payment: June 17, 2024
  • 3rd Quarterly Payment: September 16, 2024
  • 4th Quarterly Payment: January 15, 2025

If the initial date falls on a weekend or a holiday, the deadline will be moved to the next weekday.

Claim Your Deductions

One of the many perks of freelancing is making several deductions on your tax bill. There are expenses you can claim as tax-deductible, including:

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  • Home office expenses
  • Advertising and marketing expenses
  • Legal and professional fees
  • Business and health insurance
  • Business memberships
  • Educational expenses
  • Retirement contributions

Before adding these expenses to your Schedule C, check the IRS guidelines for claiming tax deductions. The IRS requires proof that the deductions you claim are legitimate business expenses.

For example, you must prove that your tax deductibles are ordinary and necessary for your freelance business. “Ordinary” means they’re a common expense in your field, and “necessary” means they play a vital role in your operations.

Three Essential Tax Tips for Freelancers

There’s no denying that doing your taxes as a freelancer can be a stressful experience. That said, we’ve listed a few essential tax tips you can follow to make filing taxes easier.

Organize Your Records

Organized records are the key to a stress-free tax season. If all your records are kept in one place and organized by category, you can reduce the time you spend reviewing your documents.

A well-organized recordkeeping system also helps you avoid costly errors, such as miscalculating your estimated tax payments or overlooking tax deductibles.

Understand Your Deductions

Each tax deduction we’ve mentioned comes with specific eligibility requirements set by the IRS. For example, the travel and lodging deduction only applies to business trips. You can’t deduct your family vacation from your tax bill.

Understanding these requirements will allow you to maximize your tax savings while staying compliant with the IRS. We suggest you check the IRS website for more specific guidelines on making tax deductions as a freelancer.

Create A Winning Tax Plan

If you want to maximize your tax savings, it’s not enough for you to leverage tax deductions. You’ll need a winning tax plan to guarantee long-term savings.

Start by structuring your freelance business. Your business structure determines your tax status and liability. You want to choose a structure that will allow you to minimize as much of your tax liabilities as possible.

In addition to choosing the right structure, you can include other tools in your tax plan, like retirement plans and health savings accounts (HSA). These accounts offer several tax benefits that could help you improve your savings in the long run.

A comprehensive tax plan will ultimately empower you to manage your finances and achieve your long-term financial goals.

Conquer Tax Season With Confidence

You don’t have to be afraid of doing taxes as a freelancer. By carefully following the steps we’ve outlined and taking our tips to heart, you’ll be able to enjoy a stress-free tax season.

NCH is here to assist you if you need more help filing your freelance taxes. We offer a range of tax preparation services that can take the burden of taxes off your shoulders. Our tax preparers will ensure your returns are filed accurately and properly.

Visit our website here to learn more about our services, or call us at 1-800-508-1729 to schedule a consultation with one of our experienced tax preparers.

Disclaimer: The above material has been prepared for informational purposes only, containing opinions of the provider, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Please consider consulting tax, legal, and accounting advisors before engaging in any transaction.

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