5 Tips for Filing Taxes As a Freelancer
Just because you are generating income through freelance work doesn’t mean that it isn’t taxable. A general rule to apply to your household when it comes to managing your financial records is that EVERYTHING gets taxed. You can’t go wrong this way, and if for some reason, you’re doing your own taxes and you’ve managed to over-tax yourself, then you can always contact a tax relief consultant to help you get your money back. At any rate, it’s better than underpaying and having the Internal Revenue Service (IRS) come for you! If you had to choose, wouldn’t you rather be the one to inform them that they owe you money instead of it being the other way around?
As a freelancer, we realize work is a hustle and it can be a challenge to manage your clients as well as your finances. So as the tax season approaches, we also understand how complicated things can get as far as bookkeeping goes.
That’s why we’ve come up with a list of 5 helpful tax-filing tips for freelancers:
- Track all of your expenses.
However much money you spend from your business account, make sure that you get a receipt for it. These days, a lot of businesses are trying to go paperless, so you’ll have to remember to ask for one. It’s extremely important that you have some sort of documentation that explains where your money has gone. This is going to be very important as it will determine your annual taxable income.
- Track all of your income.
Just like you need to track all of your expenses, you’ll also need to track your income. As a freelancer, you may find yourself getting paid “under the table” meaning you’ll receive payment for your services that are not taxed. That means that it’s up to you to make sure that portion of your income is taxed. In most cases, if some of your contracts are over $500, the business paying you is required to issue you a 1099 Form. If you don’t get this, then again, you’ll be responsible to report it to the IRS so that it can be taxed accordingly.
- Manage your 1099 Forms.
Just like you may be receiving 1099 Forms, you may also be adding to someone’s income. While operating a business, you’ll be required issue any 1099 Forms for any payments for $500. Some of your clients may insist you give them one even though what you’ve paid them is under $500. If this is the case, you are under no obligation to do so.
- Tax yourself.
So once you tallied your total annual earnings, you can then subtract your total annual expenses leaving you with your taxable income. This is the amount that needs to be taxed. So depending if your filing as a Sole Proprietor, LLP, or corporation, you’ll need to report the total taxable income accordingly.
- Track everything on a quarterly basis.
An easy way to take care of all of this is to track it on a quarterly basis. Waiting to organize all of your paperwork over the span of 12 months could give anyone a headache! Setting things straight every three months can make your next tax season much more pleasant.