Contributor: Mary Shannon
While creative freelancing comes with many wonderful benefits, the job also entails several unique responsibilities that you just don't have to think about when you work for an employer. This is all too clear when tax season rolls around. Freelancers, regardless of their industry, assume all of the responsibility for record-keeping, reporting, claiming benefits, and paying the correct amount of taxes. Since self-employment taxes can get very complicated, especially if you have multiple streams of income, here is a guide to help you out!
How to Make Tax Time Easier
There are a couple of key things you can do now to make your life a lot easier when taxes come due next year.
● If you work as a freelancer, consider forming an LLC to establish your business as a separate legal entity. Formation services can help you get started.
● Keep your business and personal finances separate.
● Maintain clear and accurate financial records throughout the tax year.
Paying Taxes on Self-Employment Income
Make sure you clearly understand your tax obligations so you can avoid fines and penalties for missing important details.
● On top of federal and state income taxes, you will also have to pay self-employment tax.
● Self-employed individuals typically have to pay estimated taxes quarterly.
● You will need to use Schedule C of Form 1040 to report your self-employment income.
Don’t Miss Any Deductions
Business deductions can help you save a lot of money. Remember to keep track of your expenses and hold onto your receipts.
● Keep track of your business expenses throughout the year.
● If you work from home, remember to deduct a portion of your living expenses — but not all of them!
● Make sure you keep all of your receipts in case you get audited.
Tax season is tough on everyone, but it can be especially challenging if you’re self-employed. Do yourself a favor and get your finances organized as soon as possible so you’re ready with all of the information you need when tax time comes around. The more you plan ahead, the less painful your taxes will be!
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Mary Shannon created SeniorsMeet.org along with her husband, Bob, to have a website that allows seniors to meet up and talk about topics that are relevant to their daily lives. They hope to build SeniorsMeet into a supportive community of like-minded seniors.
