As tax day rapidly approaches, there is one group that awaits their reckoning with a particular sense of dread: freelancers. Worries about owing back taxes can be intense, especially if, like most folks in this field, you’re already on a tight budget. But your life can be made significantly easier with just a little bit of essential tax information.
Always, Always File
There is a lot of misinformation out there about how much you have to make as a freelancer in order to file a tax return. But while the minimum gross income you need to make in order to owe any taxes is $10,300, you still have to file even if you make far less. If you’ve made $400 or more as a freelancer, you MUST file a tax return claiming that income. If you’re below the $10,300 mark, you won’t owe anything, but you still need to file.
Don’t Do It Yourself
If it’s at all possible, file your returns with a professional. Online options like TurboTax can leave you vulnerable to audits if you don’t understand the complicated rules regarding deductions. Also, tax professionals are experienced in finding ways to lessen your tax burden that civilians just don’t know. Make sure your accountant deals with freelancers regularly, and knows about you and how you run your business.
Set Aside Enough Money
Perhaps the most important piece of tax information is that you should set aside about 30% of your income for taxes. You may owe less, but that’s a great place to start from, and you’ll ensure that you won’t be panicking come April 16th.
Pay Four Times A Year
One way to significantly reduce your tax burden at the end of the year is to pay estimated taxes every quarter. You’ll end up paying the same amount, but in more manageable chunks. You’ll also reduce the likelihood of being unable to come with the money all at once, and thus having to make a payment plan or pay interest.
Know What You Can Write Off
Find out what the standard deductions are in your field. What do your peers do? The IRS standard is that expenses that are “ordinary and necessary” can be deducted. That leaves a lot of room for interpretation, so find out what’s normal and hew closely to that.
On a related note, the easiest way to keep track of deductions is to save and track your receipts. Physical receipts can smudge or be lost, so be sure to keep track of them digitally as well. Apps like Evernote will allow you to take pictures of your receipts as you enter them.
Pay What You Owe
If after all of the above, you still end up owing back taxes, try not to worry. It’s very easy to qualify for an online payment plan, which will keep interest rates very low.
Make Sure You Get Your 1099s
If you make more than $600 from anyone, they NEED to give you a 1099 form showing how much you’ve made. These are crucial! If you don’t get one by the beginning of February, hassle the relevant people until they pony up.