Tax Day is Coming! 5 Tax Tips for Freelancers
As any freelancer will attest, the freedom of making your own money on your own schedule is a wonderful perk. However, that freedom can be confusing when tax time comes around. It’s a little less clear what you’re supposed to do.
The following list of tax tasks is not comprehensive, and it’s important that you connect with a tax professional to make sure you cover all of your liabilities as a freelancer. That said, here are five basic things you need to know when you start to process your freelancer taxes.
You have to file any income over $400.
Whether it’s babysitting, singing at a wedding or crafting award-winning graphic design, you have to file any income over $400 and pay taxes on that income on a quarterly basis.
The easiest way is to manage your filing and quarterly taxes is to set up an account with the Electronic Federal Tax Payment System (EFTPS) and connect a bank account that you can use to pay quarterly estimated taxes.
Clients will send you a 1099.
In a given year any client that pays you more than $600 will send you a 1099 form, which you will use to file your taxes with a tax professional. Before they send this form to you, you must send them a W-9 form with all of your tax information.
If a client doesn’t send you a 1099 form, you can still file your taxes using your profit and loss statement from recording payments throughout the year. You can also reach out and contact the client to request a 1099.
Student loans will send you a 1098.
As you work down your student loan debt, you can deduct the interest you’ve paid over the year. Each student loan will send you a 1098 noting how much you can deduct for this purpose.
If you have a home office, you can deduct that square footage, a portion of your utilities and office expenses.
How you process these deductions will depend on your tax professional, but make sure you keep track of how much you spend on utilities and office expenses as well as the size of your office relative to your home so that you can deduct these expenses on your tax return.
Bookkeeping and expense reports are different.
Speaking of deductions, sometimes it’s easy to get different parts of accounting mixed up, such as bookkeeping and expense reporting. While you’ll want to monitor and record your expenses throughout the year (software subscriptions, new pens and a business book), you’ll also want to keep an eye out for bookkeeping tasks such as depreciating assets like new computers and office furniture. Your tax professional may charge you differently depending on the kinds of bookkeeping support you need, so you’ll want to understand what you have and haven’t been taking care of in that regard.
Are you a freelancer? How do you prepare for tax season? And if you’re expecting a tax refund, here are six things you can do to reinvest it into your career.