You can’t stand working a 9-5 anymore. The days are grueling and you’re not getting ahead in life. You often daydream at your cubicle what it would be like to be a freelancer.
Doesn’t the sound of freelancing sound, well, free? Given the benefits, there are a few complications that arise come tax season.
When working as a freelancer, you are your boss. In the eyes of the IRS, you are self-employed and must file your taxes as a business owner. Self-employment does come with some tax deductions, but you’ll also face things like self-employment tax.
If all this sounds like a headache, do not fret, we are here to help. Let’s break everything down for you. When taxes roll around you’ll be a confident little freelancer.
Sources of Income
What are your sources of income? If you’re like most freelancers, you’ll have multiple sources.
Have your 1099-NEC forms from each of your clients. Make the process of paying taxes as a freelancer seamless. Organization and keeping track of everything is key.
Self-Employment Tax
Aside from the regular tax income, there are additional taxes for freelancers. The self-employment tax is required when working as a freelancer.
When you’re an employer, Social Security and Medicare are taken out of your paycheck automatically. When it comes to what to know about taxes when you’re a freelancer, you should know that you are both the employee and employer.
Money Owed
Freelancing and taxes come at a cost. Reducing your liability as a freelancer is the name of the game. When paying taxes as a freelancer, your business expenses will be higher.
Compared to a regular employee, you’ll have more leeway in terms of your tax deduction options. Keep in mind that these tax deductions will need to be ordinary and necessary.
While you can do everything on your own, tax services do provide a sense of relief.
Write-Offs
What are these ordinary and necessary expenses categorized by the IRS? The best thing to ask yourself is “if I wasn’t working as a freelancer, would I still have X?”
Tax prep for freelancers can be a little more complicated, but don’t let that discourage you. When paying taxes as a freelancer, your write-offs include business-related food, lodging, office expenses, and required equipment/materials.
In today’s work from home climate, the home office is a deduction. Your rent and utilities may apply when working as a freelancer. Keep in mind your office space needs to be for freelancing purposes only for write-off considerations.
It is essential to have your personal and business expenses separate. This will ensure that there are no complications with the IRS.
Working as a Freelancer Is Rewarding
Whether you have been working as a freelancer for a while or are new to the game, we hope our guide has helped for tax purposes.
Like anything, it takes practice and patience. If you are interested in becoming a freelancer, we highly encourage it.
For more advice on business and the like, read up on our blog. You’ll be pleased with what you’ll find there!
