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How to File Freelance Taxes for Beginners

working as a freelancer from a tropical island? the literal dream. figuring out how to file for freelance taxes? a nightmare. check out this guide to help!

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Before the pandemic even forced workers to get creative with how they earn money, nearly half of Gen Z was already hopping on the gig train. 46% of ‘em said that they were freelancing, and they were doing so by choice (73% said they were freelancing because they wanted to, not because they needed to). Working as a freelancer from a coffee shop or remote tropical island? The literal dream.

Well, it’s at least a dream until it comes time to pay freelance taxes. As a freelancer, you’re responsible for a bit more of the dirty work than if you work for an employer. And lemme tell you, it sucks to file freelance taxes for the first time. Here’s what we’d wished we’d known well before filing freelance taxes and a few additional tips to help you make the most of your return (if you get one) as your own self-employed boss.

Are you a freelancer?

First, make sure you qualify as a freelancer (self-employed or independent contractor). Let’s start with the term “freelancer,” which you won’t see anywhere when actually filing your taxes. The two most commonly used terms are self-employed and independent contractor. What’s the difference?

If you are self-employed, then you work for yourself entirely. You have a list (hopefully a long one) of clients with whom you work independently. You’re an independent contractor, too, in this sense because you’re not on their payroll as a staff member. However, sometimes companies do hire for roles that are for independent contractors. This means that you might work full-time for the company and even head into the office for a full 40 hours a week.

If your contract stated that you would be an independent contractor, you’d have to pay freelance taxes. You’re not an employee in this sense, and you can read more on the difference between employee vs. independent contractor here.

What is the freelance tax rate?

The self-employment tax is 15.3%, and it’s broken into two parts: 12.4% for social security and 2.9% for Medicare. Normally, your employer would pay for this, but you gotta pick up the bill since you’re self-employed.

Then, you’ll have to pay your regular income taxes as well. How much you’ll pay depends on the tax bracket you fall into, which you can find here. Most people have to add 12% or 22% onto the 15.3% freelance tax rate, depending on how much they made.

Keep this in mind throughout the year! This is one of the most challenging things to learn when becoming a freelancer and independently filing taxes. Even though you might receive $1,000 from a client for a project, and even though 100% of that cash goes straight to your bank account, you don’t get to keep 100% of it. You’ll owe a portion back to the government at the end of the year.

Check out the Schedule SE tax form if you need help calculating your self-employment tax (although, when you file for free online, the software usually helps you with this).

Ahh, the W-9 (and other tax forms you need to worry about)

You might have heard about the W-2, but that’s for employees, and so is a W-4. When you’re a freelancer, you’ll have to worry mainly about the W-9 form and 1099s.

A W-9 form is what you fill out and send to a client before (or sometimes after) completing work for them. This is for accounting purposes on their end, so they know how to report your information to the IRS when it comes time for them to file their taxes.

A 1099 form is issued when somebody else pays you for your services. You’ll receive this at the end of each tax year, and it’s basically a “receipt” of sorts from anybody you worked with; they’re letting you know the total amount of income they paid you, which is also the amount of income they reported to the IRS (so, yeah, the government will know how much you earned, at least from that specific client).

What about the W-2 and W-4? Salaried employees have to file their taxes in the same way that freelancers do, but instead of a W-9, they fill out a W-4 in order to tell the government how much they want to be withheld from their checks. At the end of the year, instead of a 1099 form, they receive a W-2 form with all of their reported earnings and withholdings.

Keep track of your expenses

Depending on what you do, filing taxes as a freelancer (remember, that means as an independent contractor or as a self-employed individual with your own small business) can actually end up saving you cash. How? Because you get to deduct expenses!

But, you can’t write off everything (cue the “that’s not a write off” scene from Schitt’s Creek). The IRS notes that freelance tax deductions are for expenses that are “ordinary and necessary.” This means that if you wouldn’t have purchased the item or charged the expense if it weren’t for your freelance business, it likely doesn’t count as a deduction.

Throughout the year (each month, honestly), it’s best to keep a spreadsheet of all of your expenses along with a digital file of receipts. This includes:

  • Home office expenses
  • Equipment (laptops, printers, machinery for product manufacturing, etc.)
  • Business-related travel
  • Certain meals
  • Learning costs
  • Marketing expenses

Check out a list of other top tax write-offs for freelancers to get a good idea of what you can deduct to lower your tax liability.

Where do you report these deductions? On a Schedule C form, which is attached to your 1040 (the actual form you’ll use to file your taxes).

Where can you file freelance taxes for free?

It’s worth mentioning that the IRS offers all tax forms for free online, and you’re able to file for free by filling out the forms solo and uploading them to the IRS portal. But, who has time for that?

Not every free tax filing website offers free filing for self-employed individuals. FreeTaxUSA is the best free tax program for freelancers filing their taxes.

Still not quite sure how to file freelance taxes for the first time? We get it. This was a very brief overview, and there are still more terms to learn and things to understand. Head on over to our taxes course for even more helpful information. Specifically, check out our lesson on how to file your tax returns.

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