3 Things Every Freelancer Needs To Know About Filing Taxes
Whether you are a freelance copywriter, florist, or photographer, working for yourself can have its benefits. From independence and doing what you love to taking control of how much you earn and how long you work, the benefits can be appealing. Unfortunately, freelancing does have its downsides, which is evident during tax season.
As an independent contractor or freelancer, it is important to note that you will be responsible for paying your own taxes. This can be troubling for many freelancers, especially if you are just starting out. With this guide, you can reduce the stress of filing your taxes.
If you were a traditional employee, your employer would deduct the taxes directly from your paycheck. However, self-employed individuals have to pay taxes in a completely different manner. The total amount you will be responsible for is based on your net self-employment income.
Self-employment income is the total amount of your gross receipts minus any tax-deductible business expenses. This net amount is actually taxed twice because the Internal Revenue Service considers self-employed individuals as two entities: the employee and the employer.
There are different options for paying your taxes as a freelancer. You can choose to deduct earnings each month to use towards making tax payments at the end of the year. Or, you can make smaller payments quarterly during the year. There are advantages to each option, so it will be up to you to decide which is the right decision for you and your finances.
No matter which type of business you own, you will have many expenses. Photographers need to purchase camera equipment and software periodically. Writers use a home office and may spend money on marketing themselves. If you own a crafting business, you will have numerous supplies that can be written off as deductions.
Legitimate expenses related to your business can be deducted from the total amount of self-employment income you earned. This is helpful because it reduces how much your self-employment income is, which reduces the amount of taxes you need to pay.
Here are a few other business expenses you may be able to deduct:
- Mileage and gas for vehicle use
- Unpaid invoices
- Professional development/training
- Hotel and other travel expenses
- Uniforms/specialty items you need to wear
- Client meals/gifts
- Rental fees for office/equipment
- Office furniture
- Office supplies
It is also important that many freelancers research the home office deduction. Unfortunately, many people who work from home will try to take this deduction even though they do not have an actual space designated for their business.
A home office deduction is only acceptable if the space is used only for your business. There should not be any other furniture or use for this room other than your business. If it is a guest room with a desk that you use for work, you cannot take the home office deduction because you use the room for guests, as well.
Invest In Professional Help
Filing taxes is challenging for everyone, but it can be physically, emotionally, and financially overwhelming for self-employed individuals. Even if you have filed successfully as a freelancer in the past, you should consider consulting professionals at local accounting services.
A certified public accountant can help you file your taxes at the appropriate time, walking you through the deduction process successfully. In addition, a CPA can help you throughout the year, documenting your income, calculating taxes, and reducing the stress felt at the end of the year when it is time to file your taxes.
While it may be an added expense, hiring an accountant can be a worthwhile investment in your business.
Freelancing has many benefits, but paying taxes is not one of them. This guide and a professional's help will assist you through the process of filing and understanding taxes.