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Tax basics for freelancers

Whether you freelance full time or as a side job, paying taxes as a freelancer is a little more complicated than it is for W-2 employees. Want to make it easier on yourself come tax season? Here are a few tax preparation tips for freelancers.

 

Use the right form

Most freelancers operate as a sole proprietors. This is the default status for anyone who performs work as an independent contractor and doesn't register a business with their state.

Sole proprietors don't file a separate tax return to report their freelancing income to the IRS. Instead, they report freelancing income and expenses on Schedule C1 , which is attached to their individual tax return, Form 1040.2

 

Make estimated payments

When you work for someone else, your employer withholds income taxes, Social Security and Medicare taxes from your paycheck. As a freelancer, you're responsible for paying income, Social Security, Medicare, and self-employment taxes3 on your own, and the IRS expects to receive payments throughout the year not just at tax time.

You can calculate your estimated payments using Form 1040-ES.4 They're generally due on April 15, June 15, September 15, and January 15 of the following year.

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Most freelancers don't need to file a separate tax return for their side job income.

 

Track your expenses

 As a freelancer, you can use deductible business expenses to reduce the amount of tax you'll pay on your freelancing income. The type of costs you can deduct depends on the kind of work you do after all, the expenses of a rideshare driver may be very different from those of a freelance web developer. Here are a few common expenses that many freelancers claim:

  • Advertising
  • Bank fees
  • Business meals
  • Cell phone data plan
  • Computer hardware and software
  • Dues and subscriptions
  • Education and training
  • Insurance
  • Internet service
  • Legal fees
  • Office supplies
  • Postage
  • Travel
  • Vehicle mileage

Check out IRS Publication 5355 for more deductible expenses and the rules for claiming them.

 

Stay organized

For many freelancers, the pain of tax time isn't the amount they owe or even preparing their tax return, but gathering all of the information needed to get started.

Throughout the year and especially at tax time you'll receive a lot of receipts, tax forms, and other documents in the mail or your email inbox. Get in the habit of keeping everything in one place. Designate a file folder or a spot on your computer hard drive. Each time you receive a new document, save it there. This simple habit will make it quick and easy to pull everything together at tax time.

Tax season only comes around once a year, but don't wait until April to start thinking about your tax situation. Familiarize yourself with the tax forms and rules, and keep good records. And don't hesitate to reach out to a tax pro if you need more help dealing with your freelance taxes. 

Important disclosure information

This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.

  1. IRS.gov, Schedule C, Profit or Loss from Business," accessed February 20, 2020. Back
  2. IRS.gov, Form 1040, U.S. Individual Income Tax Return," accessed February 20, 2020. Back
  3. IRS.gov, Self-Employment Tax (Social Security and Medicare Taxes)," accessed February 20, 2020. Back
  4. IRS.gov, Form 1040-ES," accessed February 20, 2020. Back
  5. IRS.gov, Publication 535," accessed February 20, 2020. Back