When you’re at a company, taxes are easy. Your employer gives you a W2 once a year, which you then use to fill out your tax forms and (hopefully) get a return.
Your employer deducts your estimated tax obligations and pays them for you. Most likely, you don’t even think about it, unless you occasionally look to see just how much they are taking and then plant your face in your palm.
But if you’re a freelancer, it’s another story entirely. You’re responsible for filing your own taxes, and it works a bit differently than it would if you were employed by a company.
Many wonder how to file taxes as a freelancer. Fortunately, we have the answer. Keep in mind this is does not constitute legal or tax advice. We are not experts in this field, we just have some experience doing it on our own.
So view this as a guide and seek professional tax and legal advice when it comes to taking care of your personal tax obligations.
Freelancers often have a life that many only dream about. As a freelancer, you don’t have to answer to bosses, go to annoying team meetings, or smile your way through a conversation with a difficult coworker.
Instead, you schedule your own work and do everything exactly whenever you want.
Still, the U.S. government considers you a professional business, and that means you have to pay taxes. In fact, only people who make under $400 a year are exempt from filing freelance taxes.
So the answer to the question, is everyone needs to file taxes. I know this is not news to most of you, but you would be surprised how many people that are embarking upon their first freelancer journey completely ignore taxes and end up with a huge mess on their hands.
The best advice you will ever get when it comes to filing your taxes as a freelancer is start now, and don’t ignore them.
What You Should Know About Freelancer Taxes
When you work for a company, your employer pays for about half of your total taxes, and you pay the other half.
Yet, when you’re a freelancer, you must pay both the self-employment and the income tax. This ends up being about 15.3% of your earnings.
Most freelancers have to file their taxes on a quarterly basis. If you don’t, you could face large fines come the traditional, annual tax season.
To find out whether or not you need to file quarterly taxes, the IRS asks you to refer to the 1040-ES form on its website.
How to File Taxes as a Freelancer
So, unless you’re not freelancing full-time and are making less than $400, you need to know how to file taxes as a freelancer.
Unfortunately, this isn’t as straightforward as it is for filing taxes when you work with a company. It involves reporting how much you earned from each source of your income, which can be difficult since freelancers receive income from many sources.
Below, we’ve included some tips for filing taxes as a freelancer.
Clients who pay freelancers more than $400 for projects might send them a 1099-MISC form for their taxes. Those who pay through PayPal might send a 1099-K form.
You can use these forms to keep track of and report your income to the IRS.
If you don’t get these forms, though, you still need to file your taxes. The IRS has a Schedule C form to report your income.
If you don’t already work with an accountant, you should.
Why? Accountants become huge lifesavers during tax season. They’re able to guide you through calculating your taxes. This is essential because if you get your own calculations wrong, it can cause some major headaches.
While it is legal for you to do your taxes yourself, accountants are more familiar with the tax system, making hiring one a fantastic investment.
Also, this short (15 minutes) video from the Self-Employed Tax Guy is a great watch if you want more clarity on everything we just talked about.
Learn More About Freelancing!
Now that you know how to file taxes as a freelancer, you’re on your way to running a successful freelancing business!
Taxes are an important portion of a business’s expenses. Freelancers need to make sure they understand the tax basics, keep track of their forms, and hire a professional accountant to help them.
Want to learn more about becoming a freelancer? Apply to our school for freelancers today!