Freelance taxes: A beginner's guide to filing taxes

As a solopreneur, you can shape your career trajectory, pursue your passions, and dictate your work-life balance. However, amidst the freedom and flexibility of this lifestyle, you also have a crucial responsibility—filing your freelance taxes correctly.

Whether you're a freelance writer, graphic designer, consultant, or any other independent contractor, our beginner-friendly guide will equip you with the knowledge and self-employed accounting tools you need to navigate the tax landscape with confidence.

1. Declare business income
2. Determine your tax payments
3. Discover freelance tax deductions
4. Learn how to file quarterly
5. Consider hiring a tax professional

1. Declare business income

The first step in filing self-employment taxes is to gather all relevant business income from the filing season. The sources of your business income will determine the appropriate forms you need to file with the IRS.

Here are the most common tax forms for freelancers:

• Schedule C (Form 1040): You’ll document your business income and expenses here.
• Form 1099-MISC: A business that pays you over $600 for your goods or services should provide this form.
• Form 1099-K: If you received over $20,000 in income from 200 or more payments from third-party payment processors (like PayPal) in 2023, you'll receive a 1099-K from those processors. For 2024, the threshold drops to $5,000 in payments.

Understanding your business type is also crucial, as it significantly impacts how you file freelance taxes. Different entities, like Limited Liability Companies (LLCs), C Corporations, and Sole Proprietorships, have distinct tax implications and filing requirements.

2. Determine your tax payments

To succeed as a freelancer, you have to be proactive. Just like you have to take the initiative to find work, you need that same mindset to plan ahead for filing small business taxes—like income tax and self-employment tax.

Income tax

You’re responsible for reporting business income and expenses in a Schedule C and deducting allowable expenses on your tax return. The record of your profits and losses will determine the amount of income tax you’re responsible for paying. Meticulously track your earnings and deductible expenses throughout the year to ensure accurate reporting, which you can streamline with accounting software.

Self-Employment Tax

Employers withhold each employee’s share of FICA and Medicare taxes from gross pay. Freelancers, on the other hand, must pay those taxes using Schedule SE (Self-Employment Tax). Currently, freelancers pay a 15.3% tax rate for FICA and Medicare taxes, with one-half of those taxes posted as a deduction from taxable income on Form 1040.

Tax liability

Planning ahead also helps you avoid paying penalties, fees, and interest on your tax underpayments. Accurately estimate your tax obligations, make timely estimated tax payments, and maintain thorough records of your income and expenses throughout the year. Proactively managing tax obligations can help you avoid costly penalties and ensure compliance with tax regulations.

3. Discover freelance tax deductions

After you gather your business income and determine your tax payments, you’ll get to identify which freelance tax deductions apply to your business. 

Here are examples of expenses you can deduct this year:

• Travel and hotel
• Home office
• Utilities
• Professional development
• Advertising and marketing
• Website
• Software
• Vehicle
• Unpaid invoices
• Incorporation
• Health insurance
• Legal fees

Claiming tax deductions can help you cut costs during tax season. However, similarly to estimating your tax liability, be careful not to overestimate freelancer tax deductions to avoid penalties.

4. Learn how to pay freelancer taxes quarterly

Although some self-employed freelancers file taxes once a year, you may be responsible for paying quarterly taxes. Quarterly tax estimations can benefit those with fluctuating income since you can adjust your estimated taxes every three months.

Note the quarterly tax deadlines on your calendar. The due dates for 2024 are April 15, June 17, September 16, and January 15 of the following year. Adjust accordingly if the due date falls on a weekend or holiday.

5. Consider hiring a tax professional

Navigating the complexities of freelancer taxes can be daunting, especially when experiencing small business growth. Here is why you should consider hiring a tax professional:

• Expertise: Tax professionals know freelancer-specific tax laws to ensure compliance.
• Time-saving: They handle tax preparation, saving you time and avoiding stress.
• Risk reduction: Professionals minimize errors, preventing penalties and audits.
• Strategic advice: They offer tailored tax planning to optimize your savings.
• Peace of mind: With professionals managing taxes, you can focus on business growth.

While hiring a tax accountant may entail additional costs, the benefits they provide can far outweigh the investment. Consider consulting with a tax professional to determine the best approach for managing your freelance taxes.

Find peace of mind come tax time

Paying yourself as a freelancer means you’re responsible for both employer and employee tax obligations. Keeping track of your business income, expenses, and deductions can quickly become overwhelming without effective accounting software.

By engaging with accounting tools and seeking professional assistance when necessary, you can find peace of mind come tax time and confidently manage your freelance taxes with ease.