Taxes for Freelancers: 10 Tips for a Stress-Free Tax Season (2024)

The U.S. now has more than 56.7 million freelance workers and many don’t understand taxes for freelancers.

I’ve been a full-time freelancer since before 2010, so saying I do have a clue about this is an understatement BUT this is NOT tax advice. These are just tips and you should speak to a professional if you aren’t sure about something.

Before we get into the taxes for freelancers tips, I do want to answer a couple of important questions that I had when I first got started. I will also let you know why this matters.

Do I have to file taxes as a freelancer and how much money do I have to make to file my taxes as a freelancer?

As a freelancer, if your gross income is $400 or above, you have to file taxes. You shouldn’t assume that the IRS knows there are expenses that reduce your income. If $400 comes into your business PERIOD, you need to file or you can get into trouble.

While you won’t get in trouble if you don’t owe taxes or if the IRS owes you a refund, do you really want to bank on your tax skills? Just file.

When I say trouble above, we are talking fees out the wazoo and the longer you take to take care of those pesky taxes, the more those fees are going to be. #facepalm

Are freelancers self-employed?

You may have heard that the self-employment tax is 15.3% and you want to know if you’re self-employed as a freelancer. Yes, you are self-employed as a freelancer.

Now that you’ve got the answer to some of the most commonly asked questions when it comes to taxes for freelancers, let’s get into those tips!

Contents

1. Know Your Business Structure When Dealing With Taxes for Freelancers

As a freelancer, you need to know your business structure to know how you’ll be paying your taxes.

While business structure can be confusing when you’re starting out, it’s important to get this right as early on as possible.

As a sole proprietor, you are the one that is responsible for all profits and debts.

As a partnership, you’re in partnership with someone and it can either be a general or a limited partnership.

As a limited liability company, you get the benefits of a partnership without being personally reliable like you are as a sole proprietor.

As a corporation, it’s a little more complicated and most freelancers don’t opt for this structure, but if you want to — have at it. Just make sure you understand what it entails.

2. Keep Track of All of Your Income

Organization is your friend. Don’t fight it.

Whether you keep records physically or you have online records of your income, make sure they are organized so you can easily access them. When tax time comes around, you need to be able to easily show where your money came from and how much it was.

You may have some 1099s from clients but if you’re like me, you might get paid through PayPal or other payment methods.

While PayPal does give 1099s to some of its users, you have to have at least 200 transactions and a minimum income amount to get a PayPal 1099.

4. Ready Yourself for the Self-Employment Tax

If you weren’t aware of the 15.3% self-employment tax, this can come as a real punch in the mouth.

You can pay these taxes quarterly, so it makes it a little easier going out or you can pay it at the end of the year in a lump sum.

5. Consider Making Estimated Payments

As we stated in the point above, you’re going to have to pay self-employment taxes. Each quarter, you can pay estimated payments which make it a lot easier for you at the end of the year.

On April 15, June 15th, September 15th, and January 15th, you can pay what you estimate your taxes to be for that quarter. As we said above, you don’t have to do this but if you don’t think you can stomach paying the whole bill at once, this can be a good option for you.

6. Understand Deductions

If you don’t understand what you can deduct from your income for expenses, you might be overpaying in taxes. Here is an example of some things but don’t forget to ask a tax professional if you aren’t sure.

Marketing
Advertising
Travel for business
Office furniture
Computers
Software
Services
Supplies

If you have other expenses that you believe are related to your business, don’t assume since this can get you into big trouble if you’re audited.

7. Consider Claiming the Home Office Deduction

Since I live in an RV and don’t have a dedicated space, I’m not able to use the home office deduction, but you should look at the requirements and see if it is available to you.

8. Know If You Will Contribute to a Retirement Account

You might not feel like you’re making enough money to contribute to a retirement account right now and you might be right. If you can’t survive off your income and contribute then at least keep it in mind for the future.

There are a few types of retirement accounts you can consider as a freelancer when you’re looking at taxes for freelancers and investing in your future. These are:

Solo 401(k)
SEP-IRA
IRA

9. Categorize Your Business Expenses

I decided to put this at the bottom since most people aren’t going to go to all this trouble and will probably just drop a box of receipts on their CPA’s desk, but as a best practice, you should categorize your business expenses.

The better your records are, the more tax savings you’ll be able to enjoy.

10. Consider Using an HSA (Health Savings Account)

Having an HSA allows you to pay for qualified medical expenses on a pre-tax basis, which means that you’ll be able to cut your tax bill. Before you get excited, you need to research how HSAs work and how they can help you.

Now You Understand Taxes for Freelancers

Good on you for getting through all of this and getting a good grip on taxes for freelancers. Now it’s time to go out and take care of those taxes.

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