As a freelancer, you’re considered self-employed. This status means you’re responsible for your own income taxes. Unlike traditional employment, freelancers are required to pay estimated taxes quarterly to the IRS and to state tax agencies.
Having an understanding of tax specifics related to freelancing can help you to ensure that you do everything properly. If you have any issues with taxes, you can consult with someone knowledgeable in this field.
Understanding taxable income and deductions
“Taxable income” includes all earnings from your freelance work, minus allowable deductions. You should keep detailed records of how much you earn from each client to make it easier to report accurate numbers when you file your taxes.
Deductions can encompass business expenses like office supplies, marketing costs, business-related travel and even a home office deduction. All deductions are subject to specific criteria.
The self-employment tax
Freelancers are also accountable for the self-employment tax, which covers Social Security and Medicare taxes, usually split between employers and employees in traditional jobs. As a freelancer, you handle both portions. However, you can deduct some from your income tax. All of this is spelled out clearly on the applicable tax forms.
Record-keeping
Maintaining accurate and comprehensive records of your income and expenses throughout the year is crucial. This includes keeping copies of all deductions and income you receive during the tax year.
Given the complexity of self-employment taxes, freelancers should consider consulting a tax professional. With careful planning, freelancers can effectively navigate the tax landscape and ensure compliance with tax regulations. Any misstatements or omissions on tax returns may lead to issues with the IRS, so be sure you read all notices sent to you and respond accordingly.