As with any professionals, freelancers need to pay taxes to keep Uncle Sam happy. However, many feel like a lost ball in the high weeds when filing taxes.
The tax rules for freelancers are complex. There are a lot of things you need to care when filing taxes. Any error in the tax file can result in a hefty penalty.
If you are also a freelancer and can’t seem to make heads or tails of the complex tax rules, you are at the right place. Here we have compiled four important tips that can help you in filing the taxes.
1. Know About the Deductibles Before You File
Most freelancers don’t benefit from tax deductions allowed by the IRS. They don’t know what they can deduct to reduce the taxable amount.
One of the biggest deductions for freelancers is ‘mileage’. You should keep a record of the mileage whenever you drive from your home to the client.
Remember to offset health insurance premiums from taxable income. Unlike regular employees, freelancers are allowed to treat the premiums as business expenses. The cost can be offset from the income to reduce the taxes paid to Uncle Sam.
Other deductions that you can claim in tax Form 1040 include the following.
- Office space — $5 per square foot with a maximum limit of 300 square feet.
- Office Supplies
- Relevant Hardware and Software
- Health Insurance
- Freelance Career Membership Dues
- Legal and Accounting Services
You can read about the complete list of allowed tax deductions for freelancers here.
2. Cross Check Paid Amount in 1099-Misc Form
For every customer who has paid you more than $600, you should double check the numbers written by the client in 1099-MISC Form. The form is submitted to the IRS that shows how much you have been paid during the year.
Cross-checking the amount written in 1099-MISC Form is important to ensure that your records match the amount written in your customer’s records. This will avoid any discrepancies regarding customer payments thereby preventing a penalty.
3. Reporting Time
A lot of freelancers are in the dark about when to submit taxes to the IRS. The tax period for freelancers comes four times a year.
Unlike regular employees, you have to pay quarterly payments based on estimated income every 15th of January, April, June, and September.
4. Know When to File Form W-2
Freelancers are required to file form 1099. However, there are cases when they have to file form W-2 like regular employees.
If you work for a client that requests you to work at the premises at least 20 hours a week for more than three months, you have to file form W-2 instead of form 1099. You can use online services, such as The Paystubs, to fill and generate form W-2.
The above tips will help make filing taxes a breeze. While it’s not April 15th yet, knowing how to properly fill taxes now will ensure that you don’t pull your hair out when the tax season finally arrives.