Experts say that by 2027, over 50% of the US workforce will be freelancers.
And it’s easy to see why. Freelancing means the freedom to work when you want, from where you want. As a freelancer, you can make up to, or even more, income than your typical 9-5 gig.
So what’s standing between you and the freelance lifestyle? Taxes — but with a little knowledge, they aren’t as complicated as they seem. Freelancing is definitely something you should take into consideration, especially if you are a single mom or dad struggling with finances.
Here are four money-saving tips to help you when filing freelance taxes.
- Keep Track of All Sources Of Income
As a freelancer, you may work for many different clients throughout the year. So when it comes to freelancing and taxes, keeping track of all sources of income is crucial.
To keep track of your clients and income, we recommend making a master spreadsheet. Designate a new page in your spreadsheet for each client. Then, make columns for the projects due date, expected pay, invoice sent, and payment received. This lets you know exactly where your project is in the payment process while juggling multiple clients.
If you’re having trouble collecting the right information, you can use sites like paystubcreator.net to receive the proper paperwork from your clients.
- Make Quarterly Payments
If you’re new to freelancing, you’re probably wondering how to pay taxes as a freelancer.
It is a more involved process than those working a typical W-2 job. With traditional employment, your employer pays taxes out of each of your paychecks. Then, once a year you file taxes and either receive a refund if they overpaid or make up the difference with a payment to the IRS.
As a freelancer, your clients pay you the full amount for the work done, with no taxes accounted for. Because of this, you’re expected to pay quarterly payments with the freelance tax form 1040-ES.
- Set Aside Taxes as You Get Paid
If you’ve only worked a traditional job, it’s easy to take taxes for granted. Many freelancers can find themselves in a tough spot come April if they haven’t planned properly for taxes.
We recommend starting a separate bank account solely for tax purposes. As soon as you get paid for a project, transfer a certain amount of that payment into your separate account for taxes. That way you won’t be tempted to spend the money.
30 percent is a good starting point to save for taxes. But talk to your tax preparer as everyone’s situation is different.
- Don’t Forget About Deductions
When preparing for your annual taxes for freelancers, don’t forget about deductions.
As a freelancer, you’re taxed on your net income, minus your business deductions. So the more deductions you claim, the less of your income you’re taxed on. Remember to save receipts and track expenses throughout the year to know your actual costs.
A few of the more common expenses include:
- Office equipment, such as a computer or printer paper
- Mileage for work-related travel
- Healthcare expenses
- Home office expenses
Budget Tips Beyond Freelance Taxes
Now that you know the basics of freelance taxes, you’re ready to be your own boss.
Remember to keep track of every single source of your income and to set aside money for your taxes each time you get paid. To make the most out of tax time, file quarterly and keep track of all deductions you qualify for.
For more help getting your freelance budget in shape, visit the Money section of our site.