Hello Hello F22 Crew!
We know that I’m a self-employed freelancer, but you may not know that a lot of my blog posts actually start out as questions that I have myself about the world! So when I realized my taxes situation was going to drastically change in 2019, I started to do some research. Doing taxes and understanding them for a 9-5 is hard, let alone for freelancing or a situation where you may do both! So these were my main questions, and what I’ve come to understand about them. I hope this helps you navigate the world a little easier!
Self-Employment Tax – What is it? What do I have to pay? What’s different?
Freelancers end up paying a lot more for taxes than you’d expect. The self-employment tax is 15.3 percent. It covers your social security and Medicare taxes. When you’re employed by a company, they are taken from your paycheck automatically. The employer also covers HALF of the costs which leaves you with more money in the bank. The truth is, you’re now the employer – and the employee!
Welcome to running your own business. However, it’s not so bad, there are plenty of incentives for freelancers come tax season. It’s a good idea to log your income, consult with a professional, and fill out the proper forms to maximize your income and be in compliance with IRS regulations.
Which Form Should I Use?
Depending on how much income you’ve earned and where you earned it you most likely will be filling out a 1040 form with a self-employment tax form attached. The 1040 form will figure out your total earnings from self-employment and the “SE” attachment will calculate the tax owed on these earnings.
When you make $600 or more from a single client you need to fill out a 1099 MISC form and attach it to your personal taxes. This basically says you’re an independent contractor and you’ve received outside income from one source that is substantial. Typically, if you’re working with a big client, they will provide you with this form by February 2nd. If you haven’t received your 1099 MISC form, make sure to request one so you can report correctly.
Now if you’re filing under a multi-member LLC, partnership, or corporation you will need to file a separate return for your business. Possible forms include form 1065 (partnership), 1120 (C-corp), or 1120S (S-corp). Pull each form up, look at the guidelines, and choose the proper one for your business.
How do you stay ahead of your taxes if nothing is being pulled out?
Your company job is pulling out money every paycheck for taxes, and matching that amount. When you’re freelancing nothing is coming out, but that doesn’t mean you are getting off the hook. The IRS states that if you are going to pay $1,000 or more this year in taxes that you should make quarterly payments before it all hits you at once.
So, if you’re making $6,000 you should be paying taxes quarterly. Anybody is eligible to make estimated tax payments. If you end up paying too much the IRS will send you the estimated amount back in form of a tax refund. You’ll have a remaining balance otherwise that you’ll have to pay at the end of the year if you don’t pay enough.
If you plan on paying quarterly the dates a form 1040-ES helps estimate the amount you owe. If you’d like to make payments the dates for them are as follows:
- January 1–March 31 (Deadline: April 15)
- April 1–May 31 (Deadline: June 17)
- June 1–August 31 (Deadline: September 16)
- September 1–December 31 (Deadline: January 15 of 2020)
How do I save money on taxes?
Credits and deductions, simple as that. You need to track everything that you’ve used to grow your business or maintain it. Here are some common deductions and credits that you can get back on your tax return when you’re self-employed:
- Part of your mortgage or utilities IF you have a designated “office” for your business
- New work computer? Filing cabinets? Software for bookkeeping? All if this fits the bill.
- You can expense travel for work related causes. Think flights, gas money, and depreciation on your car!
- Anything else that you can possibly think of as long as you can prove it’s a necessary business expense.
How much of this should I keep track of?
Keep track of everything. Solid recordkeeping can save you big time when it comes to reporting your income. Create a custom Excel spreadsheet that suits your needs, log each expense for your business, each client, and the total income you’ve received.
You should also be saving all your receipts and invoices that are business related. A great idea is to build a tax folder on your computer with an excel spreadsheet and pictures of each categorized receipt. The more you organize the easier it will be to prove yourself and find more tax write-offs!
This will help you stay organized come tax season. Additionally, if you are having a professional help with your taxes this will help them maximize your return and limit your expenses.