Being your own boss has benefits, but it also means handling your own taxes. Check out this guide to learn how to do taxes as a freelancer.
If you do freelance work, you know how great being your own boss can be. But there can be some drawbacks, especially when it comes to things like taxes. If you don’t know how to do taxes as a freelancer (or file them incorrectly), you could end up with some nasty fees and legal issues.
How to Do Taxes as a Freelancer
Not sure how to file taxes for freelance work? In this article, we’re covering the ins-and-outs of freelance tax filing. So, you can be your own boss without having to worry about improperly handling your taxes or owing way too much in back taxes.
Handle Things with an Online Tax Platform
If you’re looking to file your taxes in the most affordable way possible, you can file your taxes with a platform like Turbo Tax. It’s important to know, however, that it’s easy to make mistakes with it, even more so if you have little understanding of or experience with taxes. If you file incorrectly with Turbo Tax or make simple tax mistakes, you could even up audited by the IRS.
Know What You Need to Pay
The most important part of running your own business and doing taxes is understanding what you need to pay, and how you need to pay. If you work as a freelancer, you’re responsible for the self-employment tax, which covers Social Security and Medicare taxes. You also have to pay a self-employment tax to your state.
If you don’t have an accountant or tax professional to assist you, plan to set aside roughly 30% of your income for taxes. That number could be lower or higher, but it’s a good place to start.
Determine What Expenses You Can Write Off
When it comes to business expenses, you’re allowed to deduct anything that is “ordinary and necessary” in your industry. If you’re unsure what those expenses are, you can reach out to relevant professional associations and ask them. You can also ask an accountant or tax professional what you can expect to write off.
Be wary of writing off expenses that don’t meet these criteria. If you write off too many irrelevant or unnecessary costs, you’ll end up attracting unwanted attention from the IRS.
Keep Track of Your Receipts
If you want to expense things and write them off correctly, you need to keep track of your receipts, preferably digitally. That way, you can track expenses and show proof of them if the IRS ever comes around.
The easiest way to manage your finances digitally is to keep all receipts, as well as understanding your income correctly. Understanding your income can come down to knowing what’s on your paystub.
If you’re struggling to comprehend the information provided alongside the pay your receive from your employer, here is a paystub example that can help you understand all you need to know.
Not sure how to create track of your receipts or how to even generate paystubs? You can use paystubcreator.net for all your paystub needs!
Reach out to a Tax Professional
Just because you’re your own boss doesn’t mean you should always work alone. Especially when it comes to taxes. You should work with an accountant, one who specializes in handling taxes for freelancers and small business owners so you can handle everything the right way.
A tax professional can walk you through the whole process and make sure you understand what you’re filing. They can also identify ways in which you can save on your taxes.
Final Thoughts on Filing Your Freelance Taxes
Being your own boss is amazing. Don’t let not knowing how to do taxes as a freelancer keep you from running your own business to the best of your abilities.
Did you find the information in this article helpful? Need more tips and tricks? Check out our business blog for additional insights!