Taxes for Freelancers – Knowing its Basics
Tax season is actually an awakening for so many first-time freelancers that makes them aware with how a self-employed status is able to impact their tax situation.
If you ever only started as a freelancer and is only less than a year old, filing your first tax return as a freelancer, you will be able to learn more about what you should do. For you to get an aid to be able to know your obligations for the tax season and for the upcoming future, consider reading the tips provided below:
Income Tax and Self-Employment Tax
If in case you have a freelance business that generate about $500 in every year, you should pay self-employment tax as an addition with the income tax. This mostly surprises so many freelancers.
When you work yourself or you are a 1099 contractor, you are going to be double-taxed for being both an employee and an employer. In many cases, the amount subject on self-employment tax is about 92% on net earnings from self-employment. You can actually calculate your net earnings by subtracting your ordinary and necessary trade or business expense from gross income which you derive from your business.
Your Estimated Quarterly Payments
As an addition in putting your money aside in covering self-employment tax, it is important that you consider putting aside some money from each freelance payment that you get for you to pay the quarterly estimated taxes that are due on April 15, June 15, January 15 and September 15.
When you started your business back in 2016, you may have not accurately estimated your tax payments because you lack an income history. That year will serve as your guide in order for you to determine how much tax you will be paying for every quarter on the next year.
Create a Solid Record
In case you have issues on tax season where you need to put your hands on with all the receipts with the tax expenses as well as the records that are related with your income and tax payments, you should create a solid record-keeping system so you will be able to move forward. This actually will help you in avoiding stresses and to also help you to save time.
Acquire professional Aid
In most cases during your first year in business, you will find that it can be challenging form your cost perspective to spend so much time struggling to calculate your taxes or don’t have the time doing it. A CPA will be able to help you a lot because they could help ensure that you will be able to take advantage on all your tax deductions as well as on your credits and give you an advice on how you could structure your business as well as your personal finances for you to lower down your tax bills.
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