Career Advice By Randy

How to Deal With Taxes When You Freelance

Freelancers have special issues when it comes to taxes. Because they’re independent contractors and work for themselves, they don’t have bosses who take taxes from their paychecks. They are paid the full amount that they charge for their work, and they’re responsible for paying their own taxes. There’s a catch, too. They have to pay both the employer and the employee portion of the tax, and they pay into social security and Medicare – and they must pay quarterly, not annually. They pay a lot of tax, and the only way to reduce it is through deductions.

A home office, mileage on a vehicle that’s used to meet with clients, buying a client lunch, office supplies, and other things can be deductions for a freelancer. Most freelancers are sole proprietors, too, and their personal and business tax return is all lumped together. If you’re an LLC or a Corporation – or even a Partnership – you have to do things differently, and it may be wise to get an accountant or tax attorney to help you. Most sole proprietors, though, can do their own taxes or use software to help them so they don’t miss the deductions they should be taking.

If you’re a freelancer and you aren’t sure about the deductions you’re getting and the taxes that you have to pay, get an accountant to help you. Once you’ve seen him handle your taxes for a time or two, you can probably do them yourself without too much trouble. That’s especially true if your business is a relatively simple one without a lot of complicated deductions, credits, and payouts – or if your profit and loss isn’t difficult to figure out. When in doubt, though, talk to a professional. Don’t take chances with the IRS.

Any time you receive a payment as a freelancer, set aside at least 30% of the total to cover taxes. It may be too much, and it may not be enough, but either way, you’ll at least have the money handy when it comes time to face the music and pay quarterly taxes on your income.