Understanding the Basics: Taxes for Freelancers
Tax season can be an awakening for a lot of first-time freelancers, making them aware on how a self-employed status impacts their tax situation.
When your freelancing is only less than a year, you should consider filing your first tax return being a freelancer in order for you to learn more about what you have to do so you will be able to keep your country happy. To help you with the process in knowing what are your obligations for the tax season and for the future, it is best that you follow the tips below:
Income Tax and Self-Employment Tax
When your freelance business will generate about $500 for every year, it is important to pay a self-employment tax as an addition on your income tax. This usually surprises a lot of freelancers.
If you are working for yourself or you are a 1099 contractor, you usually will be double-taxed as being both an employer and an employee. In many cases, the amount subject on self-employment tax is about 92% on net earnings from self-employment. You can actually calculate your net earnings by subtracting your ordinary and necessary trade or business expense from gross income which you derive from your business.
Quarterly Estimated Payments
It is very important that you consider on putting aside some money in every freelance payment which you acquire so you will be able to get quarterly estimated tax that’s due on January 15, April 15, June 15 and also September 15.
When you started your business back in 2016, you may have not accurately estimated your tax payments because you lack an income history. That year will serve as your guide in order for you to determine how much tax you will be paying for every quarter on the next year.
Keep a Solid Record
In case you have issues on tax season where you need to put your hands on with all the receipts with the tax expenses as well as the records that are related with your income and tax payments, you should create a solid record-keeping system so you will be able to move forward. It helps you a lot to save time and you also will avoid stresses.
Acquire professional Aid
In most cases during your first year in business, you will find that it can be challenging form your cost perspective to spend so much time struggling to calculate your taxes or don’t have the time doing it. A CPA will be able to help you a lot because they could help ensure that you will be able to take advantage on all your tax deductions as well as on your credits and give you an advice on how you could structure your business as well as your personal finances for you to lower down your tax bills.