Tax Avoidance Syndrome: most people’s natural reaction to hearing any word related to taxes, filing taxes, or any derivative thereof. This year, the absolute last day to get over your avoidance syndrome is April 18th. Here’s a tax info recap to make sure things go smoothly for you.
Your income is gross. You need to report your gross income on your tax return. That means you need to tell the government the total amount of money you made before manager, agency fees, or any other items are deducted.
How expensive is it to have a freelancing career? Without your receipts, it’s hard for the government to know for sure. Your credit card statements do not suffice as proof of expenses for your freelancing career. You need to keep receipts of your expenses for up to seven years. Luckily, technology is on your side. We recommend the Expensify app that lets you take photos of your receipts so you don’t need to keep them in a shoebox forever.
W9’s and 1099’s. If you’ve earned $600 or more from a single client throughout the year, your client should ask you to fill out a W9 form. You then should receive a 1099 form stating the income you received from your client to submit to the government along with your tax return. This W9-1099 forms system is a way for the government to ensure that the amount your client said they paid you matches the amount you claim to have received.
Get paid, then save. All freelancers must pay federal income and self-employment taxes. Self-employment tax alone is a fixed 15.3% of your net income! Depending on where you live, you might also have to pay city and state taxes. The best way to save for taxes is to take out a percentage from each paycheck and keep this money in a separate bank account. Ask an accountant or tax professional what percentage of each paycheck you should be saving.
Estimated taxes aren’t normally ‘optional’. Many freelancers erroneously assume they can send the government one check at the end of the year to cover their tax liabilities. However, most freelancers are required to pay taxes throughout the year; the method for doing this is referred to as paying estimated taxes. Estimated taxes are a payment schedule that is set up for you to pay taxes in quarterly installments. This system is put in place to prevent you from owing a large lump sum of taxes at the end of the year that you aren’t prepared to pay.