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5 Tax Tips for Freelancers and the Self-Employed

Tax Planning

(Note: This post is for informational purposes only as I do not provide tax advice.)

Working as a freelancer or being self-employed comes with many benefits, such as the freedom to set your own schedule and the benefit of being your own boss. Unfortunately, when it comes to doing your taxes, calculating how much you owe and determining what deductions you qualify for can more be complicated when you are your own employee. To make tax time easier consider the following five tax tips for freelancers and others who are self-employed.

1. Determine Which Tax Forms You Will Need To File

The type of work you do, what deductions you will need to take, and whether or not you employ other people will determine which tax forms you will need to file. If you are a freelancer and have not filed your company as an LLC, you will probably want just to file a personal tax return (Form 1040), making sure you include all of the income you receive from your 1099s. You may need to also use a Schedule C for your expenses or Schedule E if your business is real-estate related. If you have a multi-member LLC or a partnership, you will need to file a Form 1065. For LLCs structured as S-corps, a Form 1120S will be needed and for C-corps a 1065.  For more in-depth information, visit the page the IRS has setup devoted to tax information for individuals who are self-employed

2. Keep Your Own Income Records

If you are expecting 1099s to file your tax return to show earned income, it is also vital that you keep track of all your income and expenses yourself. This can be done through business accounting programs or through spreadsheet software. Sometimes information on 1099s can be wrong, and you will not know to ask for corrections unless you have been tracking your income yourself, so it is crucial you keep your own records and then cross-reference your information with that provided to you at year-end.

Additionally, while it is crucial to keep receipts of all your expenses, having them on a spreadsheet or accounting program will make it easier when it comes to filling out your tax forms and will prevent you from having to sort through boxes of receipts.

3. Stay On Top Of Quarterly Tax Payments

When you are a freelancer or self-employed, you are expected to make quarterly tax payments if you expect to owe more than $1,000 by the end of the tax year after deductions. These quarterly payments are usually determined from the previous tax year and will also include tax forms you are required to fill out, similar to what companies that take taxes out for payroll will do. If this is your first year as a freelancer, you will probably not have been making estimated payments but hopefully, you have been setting some money aside throughout the year to cover your tax bill at the end. 

4. Itemize Your Business Expenses

Even if your home is your office, you will be able to write off some business expenses that you use for your freelance work or company. While there are typical deductions such as office supplies, equipment, and computer software, you may also be able to write off an amount of the expenses in your home that are directly used in the operation of your business. This can include expenses such as phone, internet, and a portion of rent or energy bills based on the square footage of the home that is used to operate your business.

5. Get Help If You Need It 

Since self-employment and freelancer tax returns can be complicated, it may be best to employ an outside tax specialist to help you file your return. Tax specialists know deductible expenses, the necessary forms you must file, and the IRS and tax regulations that can affect you and your business. While hiring outside help may have an initial expense, it can save you a lot of money and headache in the end. 

Mindful financial planning means knowing your numbers so that you can focus on living your abundant life.

Need a recommendation to a tax professional? 

Give me a call - 708.406.9755 - and I'm happy to put you in touch with someone who can help.

Brian Plain and Gradient Advisors, LLC do not provide tax and/or legal advice, but will work with your attorney or independent tax or legal advisor. In the event that you do not have your own attorney or tax professional we will partner with local CPA firms to provide tax services.