Taxes for Freelancers – Knowing its Basics
For a lot of freelancers who are first-timers, tax season can be an awakening, which makes them aware with how self-employed status is able to impact on their tax situation.
When your freelancing is only less than a year, you should consider filing your first tax return being a freelancer in order for you to learn more about what you have to do so you will be able to keep your country happy. For you to get an aid to be able to know your obligations for the tax season and for the upcoming future, consider reading the tips provided below:
Your Self-employment Tax and Income Tax
If ever your freelance business is able to generate about $500 in a year, you should pay self-employment tax as an addition to your income tax. This mostly surprises so many freelancers.
If you are working for yourself or you are a 1099 contractor, you usually will be double-taxed as being both an employer and an employee. For most instances, the amount which is subject for self-employment tax is about 92% on your self-employment earnings. You can actually calculate your net earnings by subtracting your ordinary and necessary trade or business expense from gross income which you derive from your business.
Your Estimated Quarterly Payments
It is very important that you consider on putting aside some money in every freelance payment which you acquire so you will be able to get quarterly estimated tax that’s due on January 15, April 15, June 15 and also September 15.
When you started your business back in 2016, you may have not accurately estimated your tax payments because you lack an income history. That year will serve as your guide in order for you to determine how much tax you will be paying for every quarter on the next year.
Create a Solid Record
When you are ever having troubles on the tax season in putting your hands on all the receipts on your expenses and also the records that are related with your income and tax payments, you should consider making a resolution in setting up a solid record-keeping system for you to go forward. This will greatly help you to avoid stresses and will also help you in saving time.
Acquire professional Aid
On your first year in the business, you will find that it is really challenging from a cost perspective when you are spending a ton of your time struggling in calculating your taxes or you lack the time in doing it. This is where a CPA can greatly help you because they will help ensure that you will take the advantage on all your tax deductions and credits and they also will provide you with an advice to how you can structure your business and personal finances so you will be able to lower your tax bills.