More and more people are leaving the traditional workplace behind for freelance work. By 2020, more than 40% of the workforce is expected to be filled by freelancers. With new technology connecting businesses and experts and the rise of co-working spaces, freelancers are not going away anytime soon. As independent contractors, freelancers often struggle to navigate the complicated tax code for the self-employed.
New York City hospitality consultant Kassy struggled to understand her filing options. She had a number of 1099-MISC’s to juggle and she didn’t know how to approach tax season. The team at 212 Tax was able to simplify the tax process to ensure everything was submitted quickly and properly. Speaking with a tax expert is the best way to simplify the tax process as a freelancer overwhelmed with the different forms and filing processes. Here are other ways to simplify the tax process as a freelancer.
Take the time to understand your situation.
The lines for freelancing are easily blurred. The first step to simplifying the tax process as a freelancer is to understand your situation. There are a lot of differences from a tax perspective between working as an employee in a company and working as a contractor.
As a freelancer, you will most likely be filing a 1099-MISC as an independent contractor. As a contractor, you are responsible for both your income and self-employment tax. Whether you file a 1099 or not, you’re still responsible for reporting your earnings. It’s important to keep accurate records of your income throughout the year so you don’t face any surprises during tax season.
Arrange to make quarterly payments.
While traditional taxpayers can expect to file their taxes once a year, freelancers who make over $1000 a year should be paying quarterly. Paying your taxes to the IRS quarterly can help you avoid penalties and interest on your income you’ve accrued throughout the year. A qualified tax expert can help you set up a system for quarterly payments as a freelancer.
Create an easy system for tracking expenses.
If you want to simplify the tax process as a freelancer, you need to devise a system for tracking all of your business expense. As a freelancer, you are able to deduct any business expenses you face throughout the year. These deductions can include expenses related to maintaining a home office space, travel, or technology. The main reason freelancers often end up paying too much in taxes is by failing to deduct their business expenses.
The first step to tracking all business expenses is learning what actually qualifies as an expense. While most of these qualifications can be guessed based on common sense, it always is helpful to review lists of possible expenses. You can track your expenses throughout the year by scanning receipts, using a separate business credit card, or consulting a professional.
Use tools to forecast your own tax bill.
Receiving an unexpectedly high tax bill during tax season can sink all of your profits. In addition to keeping track of your business expenses and profits, regularly calculate all your costs to anticipate your tax bill. While it hard to judge an exact number, there are a lot of free calculators available to help you create a reliable estimate.
Consider setting aside a percentage of each earning in a separate account for self-employment tax. This way, you are prepared for all of your costs when it is time to file independently. It is always better to be over prepared than underprepared when it comes to paying your own taxes.
When in doubt, speak to an expert.
Finally, the easiest way to simplify the tax process is to speak to a tax expert. As a freelancer, there is a lot to learn about the complicated tax filing process. While there are a lot of resources available online, the best way to ensure you’re doing everything properly is to enlist the assistance of a professional. The tax experts at 212 Tax specialize in freelancer taxes and can educate you on your options for filing.