Everyone dreads paying taxes, but nobody more than freelancers and those who are self-employed. Those who receive regular paychecks from companies have their taxes automatically deducted from each paycheck, so filing their taxes in April each year is easy.
However, for freelancers and those who are self-employed, things are much more complicated. As a freelancer or contractor, you receive your payments without any tax deductions. This means that you must pay your taxes in full each tax period, which usually means paying thousands of dollars at once. And you have to do this four times per year (more on this below).
This may sound daunting, but as long as you stay on top of things, you’ll be fine. The following are four tips for paying taxes as a freelancer or self-employer:
One of the most important things to do while preparing to pay your taxes as a freelancer is to budget properly. Remember, unlike most people, you will receive payments for your work in full, without any tax deductions. However, you must pay these taxes later. This means you have to budget thousands of dollars each quarter to ensure you have the funds for your taxes.
One of the best ways to do this is to first calculate roughly how much money you will owe in taxes each quarter. Then, after each payment you receive, immediately transfer that amount of money to your savings account so you are not tempted to spend it. In fact, to be safe, you should transfer more than you anticipate paying in taxes.
File Quarterly Taxes:
As we implied earlier, as a freelancer or self-employer, you do not just pay taxes once per year. Rather, you must pay taxes each quarter. This means staying on top of your payments and remembering to file your taxes on time every three months.
It will be easy to remember to file in April because that’s when everyone is talking about their taxes. However, you will also need to remember to file for the other three quarters. Make sure to prepare early and set constant reminders so you don’t forget.
Know Your Costs:
As an independent contractor, you are probably responsible for your own costs of employment. And remember, you are able to write off your costs. Do not forget to do this! Forgetting to write off your costs could mean thousands of dollars in unnecessary taxes.
Knowing your costs and deducting them from your taxes is crucial. However, making sure you deduct the right things can be challenging. It may be beneficial – and safe – to speak with tax professionals about what you should deduct and what you should not. After all, you don’t want to get in trouble with the IRS.
Seek Professional Help:
As mentioned above, filing independent taxes every three months can be challenging. If you are not familiar with how the system works, it may be in your best interest to seek professional help for your taxes. If you do end up seeking help, be sure to find tax professionals who are experts in filing freelancer and self-employed taxes.
If you need help, please do not hesitate to reach out. With the full range of accounting services Allman & Allman APAC provides, we are certainly equipped with the expertise for which you may be in need. Seeking guidance from our firm will provide you the opportunity to work with individuals armed with broad and deep financial knowledge, able to provide advice on a wide range of issues. As a full-service public accounting firm, our professional services will surely help you succeed and thrive. Please feel free to reach out to Allman & Allman APAC via email at Genna@apapd.com or via phone at 760-406-5056 to discuss your situation and find out how we can help you grow. We look forward to hearing from you.