Tax Tips For Freelance Professionals

Tax Tips For Freelance Professionals

Being a freelancer comes with a lot of benefits—you get to work from just about anywhere, be your own boss, and choose projects that excite and inspire you. But one part of freelance life that few people truly enjoy is the business of sorting your associated finances, especially your taxes.

A number of freelancers don’t see any taxes pulled from the payments they receive, which means it’s up to them to report these earnings and pay the required tax. Here are a few tips for making this process as easy as possible.

Put a System in Place
Every freelancer should start their freelance career by finding an electronic system for keeping track of their finances. This can make it easy for you to estimate taxes throughout the year, get a snapshot of your annual income, and provide a well-organized cache of information for your accountant or financial advisor come tax time. FreeAgent is an example of a software program that freelance professionals and small business owners enjoy.

Don’t Forget Medicaid and Social Security
You year-end tax bill is only a mystery if you want it to be. Forbes points out that all freelancers should know the self-employment tax for any given year. If you had a regular, full-time job, your employer would automatically deduct for Social Security and Medicare, but since you’re your own boss, you need to know that number each year so you know how much of your income you should expect to set aside.

Find a High Interest Savings Account
It may sound painful, but trust us—it’s easier to simply set aside a bit of money throughout the year rather than pay a huge tax bill out of your pocket all at once in April. So once you’ve figured out your estimated tax rate, set aside that money in a high-interest savings account where it will earn a bit of interest.

Work with a Professional Accountant
As a freelancer, your taxes are a bit more complicated than someone whose employer takes tax out of every paycheck. Because of this, it’s a good idea to find an accountant or financial advisor to help you manage your money throughout the year. They can do everything from help you decide how much of you paycheck you need to put away, to actually filling out the paperwork you owe the government. In addition, many times an accountant will do the heavy lifting for you if you happen to get audited by the IRS.

Consider Paying Quarterly Taxes
The government is glad to get that money from you at the end of the year—but really, they’d prefer to see a little but of it come in over the course of a year. The Freelancer's Union points out that if you think you’re going to owe more than $1,000 come tax time, you should probably start paying quarterly estimated taxes. If you end up paying too much for a quarter, that payment will carry over to the next quarter and offset that amount. Neglecting to pay quarterly taxes as a freelance may result in a penalty from the IRS.