Working for yourself has so many perks – making your own hours, not needing to get your vacation days approved, and working from home (regardless of whether it’s a global pandemic). But, things can get a little tricky when it comes to filing your income taxes. Here’s a checklist of things every freelancer should think about when it comes time for tax season:
1.Tax-pectations – Working for yourself means your employer isn’t going to do the tax work for you. That means, depending on what you’ve earned, you can owe quite a bit at the end of the year. For this reason, some experts recommend paying taxes quarterly to avoid the massive bill. Keep track of all 1099s (the IRS has copies of these too) and calculate what you owe from there.
2.Work (from home) perks – This is a tax advantage only available to the freelancers of the world (aka anyone who doesn’t have an employer). Qualifying individuals can deduct home office expenses (a new desk or computer, software subscriptions, and more) from their income, lessening the amount they’ll pay in tax. Your office must be a dedicated space (not the kitchen table) to qualify, and there are 2 ways to take a deduction – itemized by expense (and holding on to all your receipts), or a standard $5/square foot of office space.
3.Benefits for one – Without an employer to sponsor the cost of your health, dental, vision, and life insurance it’s on you to get your own coverage – either as a spouse’s dependent (if you’re married) or through the healthcare marketplace. Buying through the marketplace has tax implications (did someone say savings?!), so keep your paperwork from Open Enrollment and keep an eye out for a Form 1095-A.
Additionally, without an employer-sponsored retirement plan, you’re looking to save as much as possible in an IRA.These come with their own set of tax implications (especially if you can max out your contribution) – come filing season take a look in your provider’s portal for a Form 5498.
4.Hire an expert – Filing as a freelancer is complicated enough to warrant an expert opinion (aka an accountant). From knowing about deductions you might be able to take advantage of, to keeping track of all of your business-related expenses and receipts – there’s a lot that goes into your filing, and the risk outweighs the possible savings of going at it alone. After all, failing to file taxes is punishable by law!
For more information on taxes and figuring out your filing, check out Realworld!