Taxes for FreelancersTaxes for Freelancers-Made Simple

Taxes for freelancers can seem foreign and overwhelming. There are many moving parts that need to come together. In this article, we will go over the basics of taxes for freelancers.

The Basics

If you earn more than $400 in freelance/self-employment income you must report this on your taxes as income. The tax rate you will pay will depend on your total income for the year. However, freelancers, as self-employed individuals also owe 12.4% of Social Security taxes and 2.9% of Medicare taxes. This represents 6.2% and 1.45% for the employer and 6.2% and 1.45% for the employee. Since you are self-employed you are responsible for both portions.

Important Dates

As a freelancer there are some dates that you need to be aware of. First of all, if you are filing a Schedule C on your 1040 your taxes are due April 15th. If you file as a partnership or an 1120s your taxes are due March 15th. Last year, if you owed $1,000 or more you will also be required to pay quarterly taxes. These are ¼ payments of your estimated tax burden for the year. These payments are due 4/15; 6/15; 9/15; and 1/15.

1099s

There are several types of 1099s you may receive as a freelancer. First is a 1099-K. You will receive this if you made revenue from selling items online or gig work through an app. Next is a 1099-NEC. This stands for Non-Employee Compensation. You will receive this if you did freelance work for a business and were paid more than $600. Last is a 1099-MISC. You will be issue one of these if you received royalties. For example, if you published a book.

Think About Setting Up an LLC

A Limited Liability Company, or LLC, can provide you with legal protection. It protects your personal assets from your liabilities as a freelancer. As an LLC you can choose to file your taxes several different ways. First, you can keep it on your Schedule C on your 1040. Second, you can elect to be an S-Corp. This means you will file a separate tax return, and you must payroll yourself a reasonable salary.

Utilize Deductions

Deductions can be your secret weapon. With these you can reduce your taxable income. Some deductions include:

  • Office expenses
  • Equipment and materials
  • Phone and internet services
  • Travel
  • Subscriptions
  • Marketing and advertising
  • Health insurance for yourself, your spouse, and dependents
  • Interest on business loans

For expenses you will want to keep all receipts and other documentation. Expenses you incur should fall under the definition of ordinary and reasonable.

Preparing Taxes for Freelancers

Preparing taxes for freelancers may seem hard at first. But if you keep diligent records throughout the year, things will be easy to get together when tax season comes around. If you feel lost and overwhelmed, hire a tax professional to prepare the documents for you. They can also help you prepare to pay less taxes the following year.

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