taxes for freelancers

I’ve heard from a number of creatives and freelancers who have an “out of sight out of mind” mindset when it comes to taxes. I’ll admit - it’s not the most interesting topic and it can be very confusing, particularly if you’re self-employed! I’m going to try to break it down as I figure it out myself. Hopefully it will be useful to someone else out there.

If you’re thinking about freelancing and starting tomorrow: it looks like the only requirement is that you pay tax on income that exceeds $400. However, if you want to grow your brand there are some things to consider (especially if you want to be prepared for tax season!) 

For reference, I learned all of this using the video series on the IRS website, it’s not the most engaging or up-to-date video but I’ll be summarizing to save you the headache :)

What information do I have to keep track of?

Basically, if it relates to the exchange of money you should keep track of it. 

• Receipts

• Sales slips

• Invoices

• Documents to verify 

  • Income

  • Deductions 

  • Credits 

(they also mention bank deposit slips and cancelled checks if you still use those)

You can use Excel, Numbers or a bookkeeping software- whatever you have access to. The IRS video says that you should include the claimed amount, time and place, business or purpose, and business relationship to any person involved. Creating a file with all of this information included should help you keep track of this, as long as you’re keeping it somewhere accessible and labeled for later use.

To save  yourself from having to sort through business and personal expenses, I recommend keeping a separate account (from your personal checking account) exclusively for business transactions and purchases you make to invest in your brand. That way, you can keep records of daily + monthly business income and expenses. 

Sole Proprietor or LLC?

As a freelancer you have two options to register your business under: a sole proprietorship, or an LLC (Limited Liability Company). There’s pros and cons to both, but I think it’s important to know that sole proprietors risk any of their personal assets (cars, homes) as liability for any business-related legal consequences they might face. If you’re freelancing and haven’t registered under an LLC, it’s likely that you’re a sole proprietor already. If you’re looking to register your business, this varies by state. But if you’re in Massachusetts, you can use this link to get started.

Tax Forms you should look into:

• W9

• 1099-MISC from each client

• Schedule C (Form 1040) Or Schedule C-EZ (Form 1040)

• And Schedule SE (Form 1040)

• 8832 OR 2553 depending on status

Another article if you want more information about these forms.

And an article for more comprehensive information about this topic.

How Much Money Do I Have To Put Aside For Taxes?

After you calculate your income for the year, you will need to pay quarterly (in January, April, June, and September) both federal and state income tax. Typically, when you work for someone else, your employer will take out income tax automatically. But, if you’re self-employed you’ll have to pay estimated tax withholding (This includes income tax, self-employment tax and alternative minimum tax). I’ve seen a range of suggestions and since it varies based on how much you make, it seems like 25-35% is an estimate to start with. 

Usually you can estimate this based on previous years earnings, but - since I don’t have that I’m just going to estimate using the tool on the IRS website.

At the end of the day, there are so many resources and software available online to help you with this. Also, if you’re able to hire someone to help you out - do it! That way, you can focus your time and energy on the areas where you thrive.

I have some exposure to these topics, but like many of the people reading this - I’m learning as I go! If anyone has more resources or information to share that I missed, please send me a message! I know there’s a lot more information to be compiled.  

This week I’m going to be looking into business accounts, insurance and contacts: if you have any questions or advice on that I’d love to hear from you! Thank you for taking the time to read this, taxes will not take up much more of my content but I wanted to share what I learned :)

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