Avoidance: the natural reaction to any word related to taxes, filing taxes, or any derivative there of. 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.
1. 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 commission, manager, agency fees, or any other items are deducted.
2. How expensive is it to run your 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 physical receipts of your expenses for up to 7 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 shoe box forever.
3. W9’s and 1099’s. If you’ve earned $600 or more from a single client throughout the year, your client should have asked you to fill out a W9 form. You then should have received 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 know the amount of money the client says they paid you matches the amount you claim to have received.
4. Get paid, then save. The taxes you have to pay as a freelancer are federal, state, city (some cities don’t have city tax), and self-employment tax. Self-employment tax alone is a fixed 15.3% of your net income! 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.
5. Estimated taxes aren’t normally ‘optional’. 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 instalments. This system is put into 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.
For more information on taxes for freelancers, click here for a downloadable pdf of our recent presentation.