Being a freelancer is pretty great. It usually allows for a flexible schedule while answering to no one but yourself, and sometimes it even allows you to work from home. On your couch. In your PJs with no shower and no makeup.
But one thing about freelancing sucks. Big time. And that’s taxes.
For regularly employed people, taxes are due once a year — sometime around mid April (this year it’s April 18). If you’re a freelancer, you should be doing your taxes four times a year. But that’s not something anyone tells you until you’re in the midst of your first freelance tax season. Filing once a year like the rest of the world will likely leave you with a massive bill from the IRS.
But don’t worry, I’m going to try to help make tax season less sucky by offering some tips that have worked for me (as a fellow freelancer). If you follow these general tips, dealing with your taxes should be a sinch. Or at least not the worst thing ever.
1. Hire an accountant
This is imperative unless you absolutely love torturing yourself. I recommend finding someone who specializes in freelancers or small business owners. You’ll need to pay a fee, but your accountant can help save you some serious money and time.
You can totally do your taxes yourself with TurboTax or another tax service, but if you don’t know what you’re doing, it’s super risky. You’re responsible for the mistakes you make, and the IRS isn’t known to cut a lot of slack.
2. Know what you’ll need to pay, and set money aside
I can’t stress this enough. When you get that fat bill from the IRS, you’ll need to be able to pay it. A fun part of being a freelancer is receiving paychecks with no taxes taken out. But unfortunately, you end up paying for it later.
As an independent contractor, you’re responsible for paying a self-employment tax, which includes Social Security and Medicare taxes, as well as another fun tax that goes directly to your state. The taxes would have automatically been taken out of your paycheck if you had a full-time job, but since you are your own employer, you also have to pay the share your employer would have been paying. That’s double, you guys. The good news is you can deduct the employer portion. The bad news is taxes.
A good starting point is setting aside 25-30% of your income for taxes, according to AboutMoney. There are a lot of factors that can make the cost higher or lower for you, but generally, that’s a good starting point.
3. Make sure you’re aware of what you can write off
This is where you make some of your money back… and quick. Your accountant may not be aware of some of the business expenses your industry requires. For example, I own a greeting card company (and I’m a writer… hi), so I have to use the Internet pretty much 24/7. That means my Internet bill is write-off. I have friends who are actors and can write off their clothes, hair cuts, manicures, etc.. They have to look a certain way for a role, so it’s part of their business.
Keep track of all of your expenses — including mileage, printer ink, laptop, phone bill… anything and everything related to your business. Write everything down (or type it up). If you deduct things from your taxes and later get audited, you’ll need to show proof of everything you deducted. But don’t get audited.
4. Pay estimated quarterly taxes
You can either ask your accountant to estimate the amount of money you’ll owe quarterly based off of the previous year’s return, then submit your payment four times a year. Or you can sign up on the IRS’s Electronic Federal Tax Payment System to have the payments automatically withdrawn from your account. Doing this will ensure that you won’t get hit with one massive bill from the IRS. Four moderate bills are better than one massive bill, right?
5. Don’t leave it until the last minute
Because your sanity is worth not procrastinating.
As annoying and terrible as getting things in order to do your taxes might be, I promise you’ll feel better about it once you’re organized. And you’ll feel even better once your taxes are dunzo. Until next time, of course.