3 Tax Time Tips For First-Year Freelancers
Your first tax season as a self-employed freelancer can come as a shock, especially if you've grown used to simply handing your W-2s over to a tax preparation service. Don't worry, though – you can do this. If you've managed to make money as a self-employed worker, you've already proven that you can accomplish what many people can't – this is just one more thing you'll learn how to handle. If you get stuck, visiting a professional accountant is always a good idea. Here are a few tips that can help you whether you decide to go it alone or get help from an experienced tax preparer.
Prepare Yourself For Sticker Shock
One of the biggest obvious differences between self-employment taxes and employee taxes is the total at the end. When you get a paycheck all year, your taxes are taken out a little bit at a time as you go – you hardly even notice them. But when you work for yourself, you don't pay taxes on the money upfront. That means that it all has to get paid at once at the end of the year. You may find that you owe more than you expected, or, if you're getting a refund, that it's much lower than you expected.
You can avoid this sticker shock in future years by paying quarterly taxes throughout the year. In fact, if you earn more than a certain amount, and you expect to owe more than $1,000 in taxes at the end of the year, the IRS will expect you to make quarterly tax payments in future years. But if this is your first year, don't worry if you didn't pay quarterly taxes this year; just prepare yourself for very different totals on your return, even if you make close to the same amount of money that you made as an employee.
Take Advantage of Credits Designed for Self-Employed Workers
Do you have a dedicated home office? That's a tax credit. Do you drive to and from jobs, or do a lot of driving to keep your business running? That's a tax credit. Did you buy expensive office supplies or tools this year? That's a tax credit?
Many self-employed workers shy away from claiming these helpful credits out of fear of an audit. And it's true that the IRS does keep an eye out for and crack down on freelancers that abuse these kinds of credits. But if you're honestly using that empty room for a home office, or you legitimately bought an expensive piece of equipment, then you have nothing to fear from the IRS, and you should definitely use these credits to help defray some of the costs of doing business. Just make sure that you have well-kept records and can back up any claim that you make.
Get Help When You Need it (And Write it Off)
Not only is it a good idea to seek help from an accountant if you feel a little lost or just want an expert to double check your work, it's also totally affordable. Many freelancers don't realize that they can actually deduct the cost of tax preparation. Why not? It's a business expense, after all – paying your taxes is a vital part of staying in business.
If you need tax preparation help, all that you have to do is seek out an experienced local tax preparer. Make sure that the person or service that you choose is experienced with self-employment taxes, not just W-2s. You can even find some accountants and tax preparation services that specialize in helping freelancers like yourself. Ask your tax preparer how you can write off the cost of their services on your taxes.
After your first tax season as a freelancer, you'll see that you have it under control and that your taxes aren't so difficult to get done. Congratulate yourself on a great first year of self-employment, and get ready for another year of success.