Juggling client work, marketing efforts, and everything else that goes into a successful freelancing career is a major feat. But perhaps the most complex job that comes with being your own boss is managing taxes correctly. Whether you reach out to an expert tax agent or do it yourself, staying on top of reporting requirements and maximizing deductions takes a proactive approach.
The flexibility and freedom of freelance work are rewarding, but taxes must be handled responsibly if you want to avoid legal issues. Use these five straightforward tips to simplify the process:
Know Your Tax Obligations
As a freelancer who acts as your own boss, you have unique tax obligations that regular employees don’t share. Rather than being caught by surprise when tax season rolls around, it’s best to understand those requirements early on.
Some starting questions include:
- Are you responsible for paying quarterly estimated taxes?
- How does self-employment tax work?
- What records will you need to keep?
Although that’s only a start, knowing the answers can prevent headaches—and costly penalties— later on.
Track Your Income And Expenses
Keeping meticulous records of what you earn and spend is an essential part of freelance success. To really master this aspect of tax management, you need to track your income and expenses throughout the year, rather than at one fell sweep during tax time.
Whether you use accounting software or a simple Excel spreadsheet, log all your business earnings and expenses. Include the date, category, description, amount, and anything else that might be useful. Get into the habit of immediately tracking what you earned or spent shortly after the transaction.
This ongoing log creates clear documentation to help you better calculate estimations and deductions. It also establishes proof of business use should anything be questioned by tax agencies later on.
Deduct Relevant Expenses
One key tax advantage freelancers enjoy is the ability to deduct a wide variety of business-related expenses from their overall tax burden. Everything from home office supplies and website fees to continuing education and even travel-related expenses such as hotels and lunches might count.
To better understand what you can claim, consult the relevant tax authority to confirm whether a specific expense in your freelance work qualifies. Learning what deductions you’re entitled to will help you spend more strategically by maximizing your deduction opportunities.
Pay Quarterly Estimated Taxes On Time
Regular employees get taxes taken out of their paychecks throughout the year. Most freelancers don’t. To make up for that loss of tax revenue, freelancers in the US and many other countries need to self-report their income and pay quarterly estimated taxes.
When doing so, it’s imperative to pay attention to filing deadlines or you’ll get hit with a failure-to-pay penalty. If you’re a US freelancer and are unsure exactly how much you owe the IRS each quarter, use Form 1040-ES and reference your prior year’s final tax figure. Alternatively, consider reaching out to a tax pro to determine an estimated amount.
Seek Expert Help If Needed
Whether intentional or not, the language used in tax regulations rarely makes for light reading. While tackling taxes solo can save you money, it can end up costing you more if done improperly. If you find the complexities of what to report confusing or the responsibilities of compliance overwhelming, reach out to tax experts for help.
Embracing the basic tax tips above not only sets you up for freelance success but also relieves stress along the way. By knowing your obligations, tracking your expenses, deducting what you can, paying quarterly taxes, and seeking help if need be, you’ll keep more of what you earn.