As a freelancer, you have a whole lot of freedom in terms of your career and your lifestyle.
When it comes to your annual tax returns, it’s crucial to understand how paying taxes as a freelancer can affect your bottom line.
Read on for some helpful tips that will save you money and time this tax season and beyond.
Save Money Right Away
Since you won’t have a traditional W2 form at the end of the year, you’ll need to put money aside to pay the IRS. If you want to create a W2, check out this website for guidance. When you pay taxes as a freelancer, you should be making payments every quarter.
To ensure you’ve got enough cash, put money aside every time you get paid. You can do this by setting up a separate savings account and putting that money into it for your quarterly payments.
There’s no set percentage you should save since it really depends on how much you make. A good rule of thumb is to set around 20-percent aside each time you’re paid so you have it ready to pay out each quarter.
Deductions and Taxes as a Freelancer
When you work for yourself, the IRS allows specific deductions on your returns. If you use your home as an office, you can take a percentage of this and deduct it on the return.
Consider other things like gas and transportation for business meetings and lunches. Utility bills and rent are also considered when you use your home as an office.
Check with the IRS to make sure that you’re getting all of the deductions you are allowed by law. These deductions can really add up and should lower the amount of your taxable income.
Consider Hiring an Accountant
Managing your taxes as a freelancer can feel like a daunting task and it only adds to the number of things you have to handle daily. If you’re unsure about how to file or what to deduct, a business accountant can help.
Even if you’re only working for yourself, it’s a good idea to seek the help of a trained tax professional. The IRS laws and rules change frequently, and it can be difficult to keep up with everything on your own.
When you see an accountant, make sure you have all of your information available like receipts, profit and loss statements, and past tax returns. They can help you sort through the piles of paperwork to make sure you’re getting the best refund possible.
Face Tax Time Head-On
If you love the freedom that freelance work brings, understanding taxes as a freelancer is your first line of defense. Get to know the IRS rules and put a percentage of your money away every time you get paid.
With a bit of information and a professional accountant, you should be able to face your tax fears head-on.
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