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Filing taxes as a freelancer is a little different than filing taxes for a 9 to 5 job.
Being self-employed means there are some special tax rules and requirements you need to know. Because screwing up your tax filing is something you can’t afford when you freelance, whether you’re doing it part-time or as a full-time business.
When I first started filing taxes as a freelancer I had no clue what to do. Just like everything else freelance-related I had to figure it out as I went along.
I’ve been filing taxes as a freelancer for almost a decade now so I think I’ve got it pretty much worked out. Though any time the tax laws change I always have to double-check to make sure I’m still doing it right. 🙂
And you might have some questions about how to file taxes as a freelancer if you’re just starting to make money writing. So I’ve got some tips that can help make it easier, or at the very least, less stressful.
(Also, a reminder: Even though I write about taxes for my freelance clients and have worked with countless tax professionals, I’m not one myself.)
Ready to learn some key tax filing tips for freelancers? Let’s go!
1. Report all of your income
Being a freelancer means you’re an independent contractor. So instead of getting a W-2 at the end of the year summarizing all your income the way you would with a regular employer, you’ll get 1099s instead.
And if you have multiple clients, then you’ll have multiple 1099s to file. It’s easy enough to report that income on your taxes because it’s all right there on your forms.
But sometimes you’ll work with clients who, for whatever reason, don’t send out 1099s. So you might be thinking, do I even need to report that income?
And the answer is most definitely yes.
Reporting all your freelance income — even if you only did a few hundred dollars worth of work for a client — is a must. The last thing you want is for the IRS to question whether your tax return is accurate.
So even if you don’t get a Form 1099 from a client, make sure you’re reporting any money you earned freelancing for them during the year. Which brings me to tax filing tip #2.
2. Keep good records
Running a freelance writing business means you have to be especially good at staying organized. You need to be able to keep track of deadlines, story ideas, pitch emails you need to follow up on — basically all the things that go into running a successful business.
And you also need to be organized when it comes to paying your taxes.
So that means keep tracking of:
- How much money you earn from your business.
- How much money you spend on your business.
I keep track of my freelance income using two spreadsheets. The first one tracks what I make monthly and it includes three pieces of information:
- Each day’s date
- Total amount of money earned that day
- A description of the projects I completed
I also have a yearly income tracker that shows five things:
- Invoice date
- Invoice amount
- Client name
- Date the invoice was paid
- How it was paid (i.e. check, direct deposit, PayPal)
I’ve used this system for a long time and it works for me. And I keep track of business expenses by charging anything freelance-related to the same credit card each month. Then all I have to do is check my year-end statement to add up my deductible expenses for my business.
If you want to invest in something a little more streamlined, on the other hand, you can always try an accounting software program like QuickBooks. QuickBooks offers an all-in-one solution for managing your freelancing income and expenses and it’s what I use to file my taxes every year.
3. Know what taxes you have to pay
Filing taxes as a freelancer starts with knowing what taxes you have to pay. Aside from paying income tax, you also have to pay self-employment tax.
Self-employment tax represents what you’d normally pay in Medicare and social security taxes if you were working a regular job and your employer was taking that money out of your paychecks. As of 2020, the self-employment tax rate is 15.3%.
According to the IRS, the first $137,700 you make is subject to the 12.4% social security portion of the self-employment tax. All of your income is subject to the 2.9% Medicare tax, regardless of how little or how much you make.
So when do you have to pay self-employment tax?
The IRS dictates that you have to pay this tax if your net earnings from self-employment were $400 or more. So even if you’re brand-new and just starting to land writing gigs, chances are you’ll have to pay self-employment tax your first year filing taxes as a freelancer.
Also, it’s important to know when you have to file taxes as a freelancer. For income tax, that means filing a return by the April deadline with everyone else. But you may also have to pay estimated quarterly taxes, too.
Estimated quarterly taxes are tax payments you make four times a year against your estimated tax liability. According to the IRS, you have to pay estimated quarterly taxes if you expect to owe more than $1,000 in taxes for the year.
If you underpay your estimated taxes or don’t pay them at all, the IRS can hit you with a tax penalty. To figure out your estimated tax owed, you have to calculate your expected adjusted gross income, taxable income, taxes, deductions and credits for the year.
That can be kind of hard to do if it’s your first year freelancing. So here’s a tip you might consider: earmark a set percentage of your freelance income for taxes.
For example, in my first year freelancing full-time, I put 25% of everything I made into a savings account just to pay estimated taxes. You might want to err on the side of caution and bump it 30% or 35%.
The worst thing that can happen by overpaying estimated taxes is you get a refund when you file. That’s much better than owing the IRS or your state tax authority money once tax day rolls around.
And once you’ve gotten used to filing taxes as a freelancer, you can get a better idea of how much you should set aside for taxes.
4. Learn what you can–and can’t–deduct
Deductions are a good thing because they lower your taxable income for the year. Less taxable income = less in taxes you have to pay.
As a freelancer, some of the things you can deduct on your taxes include:
- Health insurance premiums you pay out of pocket
- Home office expenses
- Required equipment or software (i.e. a laptop or writing program)
- Retirement plan contributions to an IRA or solo 401(k)
- Office supplies
- Business-related travel expenses
- Education and training
- Advertising and marketing
- Website or blogging expenses if you started a blog as a freelancer
You can also deduct a portion of the self-employment tax you pay for the year. The key to deducting expenses for a freelance business is making sure those expenses are ordinary and necessary.
Also, remember that good records are important. If you don’t have a receipt or other proof to show what you spent for your freelancing business, then you run the risk of having to prove those expenses to the IRS later if you’re selected for an audit.
Another tip: check to see if you’re eligible for the 20% pass-through deduction. This deduction allows certain eligible businesses, including freelancers, to deduct 20% of qualified business income right off the top which could lead to some serious tax savings.
5. File the right forms
If you’re filing taxes as a freelancer then you need to make sure you’re using the right forms.
Aside from your 1099s which you should have received from your freelance clients, you’ll also need these forms to complete your return:
- Form 1040
- Schedule C, for reporting deductible business expenses and business profits
- Schedule SE, which is used to calculate self-employment tax
- Schedule 1, which is used for reporting deductible health insurance premiums and retirement plan contributions
- Form 8829, for home office deductions
You’ll also need to get familiar with Form 1040-ES, which is what you’ll use to make your estimated quarterly tax payments.
You can access all of these forms through the IRS website. And remember that if you live in a state that has an income tax, you’ll need to file those same forms for your state tax return.
6. Don’t miss the tax filing deadlines
Paying income tax or estimated quarterly taxes late or filing your annual return late can all lead to tax penalties. And that’s not something you want if you’re trying to save yourself money when filing taxes as a freelancer.
So, you need to know when your tax due dates are. That means knowing when income tax is due and when estimated quarterly taxes are due.
For 2020, the federal income tax filing deadline has been extended to July 15. But typically, the deadline is April 15 unless that date falls on a Saturday or holiday. Then it’s pushed to the next business day.
Estimated taxes are due four times a year, with the first payment beginning in April. Here’s when those payments are due each year.
- Payment 1, covering the period from January 1 to March 31: Due April 15
- Payment 2, covering the period from April 1 to May 31: Due June 15
- Payment 3, covering the period from June 1 to August 31: Due September 15
- Payment 4, covering the period from September 1 to December 31: Due January 15 of the following year
You’ll notice that the earnings periods for each payment aren’t equal.
The April payment, for instance, covers three months while the June period covers just two months. Your biggest payment is reserved for January since you’re paying estimated taxes on four months’ worth of earnings.
And remember, you have to pay these taxes at the federal and state level by these due dates. Underpaying or not paying at all can result in federal and state penalties.
7. Get professional tax help if you need it
This last tip for filing taxes as a freelancer might be the most important. Doing your taxes on your own can be intimidating at any time but throwing freelance income into the mix can make it even more so.
So if you think you’re going to need help or you feel completely lost when sitting down to do your return, don’t hesitate to reach out to a tax pro.
An accountant or tax preparer can walk you through which forms you need to file, how much to hold back for estimated taxes and what you can deduct each year. And if you’re going the DIY route with filing taxes as a freelancer, make sure you’re using the right program.
QuickBooks has been great for me because I have a lot of 1099s to report and quite a few deductible expenses each year. But if your business is newer, you might be comfortable using a simpler tax filing software.
Credit Karma and H&R Block are two options to consider if you want to start preparing your return and file your freelance taxes for free. You can file your taxes quickly and easily with minimal headaches so you can get back to focusing on growing your business.
Remember to grab your Independent Contractor template to protect yourself and your freelance writing business legally!
Do you have tips, advice or questions about filing taxes as a freelancer?
I hope this guide has given you a better understanding of what’s involved when filing taxes as a freelance writer.
Filing and paying taxes can be a little overwhelming but it’s all part of running a business and being your own boss. And the more you do it, the more you eventually get used to it.
Do you have any questions about filing taxes as a freelancer? Or a helpful tip for getting your return done?
Head to the comments and tell me about it. And don’t forget to pin and share this post with another freelancer who could use it!
Hi, I’m Rebecca, a freelance writer and homeschooling single mom of two. I teach freelancing newbies how to start making money from their writing skills and coach established freelancers on how to supersize their writing income. My goal is to help every freelancer write their way to six figures!