March 20, 2013

What All Freelancers Must Know About Tax Season

published this at 7:03 am

By Adria Saracino

To the new and veteran freelancer alike, tax season can be a time of dread. While there are many tax benefits to be taken advantage of, it can be difficult to navigate the maze of regulations surrounding each deduction–not to mention you have to make sure you’re sending all of the correct forms to the correct places.

But it doesn’t have to be a complete headache — not with the right resources. That’s why we’re recommending the seven tips below, which cover all of the essentials, as well as the documents available in this extensive tax resource center. With these two sources, you’ll find answers to all of your most burning freelancer tax questions — and a few you didn’t even know to ask.

1. Know What Taxes You’ll Need to Pay

If you’ve ever worked directly for an employer, you’re probably used to paying income, social security and Medicare taxes. As a freelancer, you’ll also need to pay a self-employment tax. This is because you are your own business, and therefore have to match your tax contributions in the same way your employer would have, for a total contribution of 15.3%. That’s 12.4% for social security and 2.9% for Medicare tax.

You’ll also have to pay an income tax, for which you can use your last year’s rates as a guide, or you can check the IRS site for income bracket cutoffs. Lastly, it’s important to check with your state revenue department and municipality to determine whether or not they are expecting taxes from you as well. For most freelancers, you will make the bulk of these payments in the form of estimated taxes at the end of every quarter — that’s the 15th of every January, April, June and September — using form 1040-ES.

2. File the Correct Forms

Every time a new client hires you as a contractor, they will have you fill out a W-9. That’s so that when tax season rolls around, they can send you a 1099, which will state the amount of money they’ve paid you. Note: You won’t receive this form for total income of less than $600.

You may be used to filing a 1040A or 1040-EZ form; as a freelancer, you’ll have to switch back to the original 1040 form, as you’ll be reporting self-employment income. To account for taxes related specifically to your business you will also need to file a Schedule C, though those with relatively simple businesses like writers or graphic designers will be fine filing a less complex Schedule C-EZ.

Lastly, you will need to calculate your self-employment tax on Schedule SE form.

Note: These forms and types of taxes paid will differ slightly for freelancers who have filed as a corporation — something all freelancers should consider for tax and liability purposes — but that is an article unto its own.

3. Take Advantage of Deductions

Now for the fun part! There are a number of juicy deductions available to freelancers. That said, it’s important to know the difference between what counts as a business lunch and what counts as a “ridiculous splurge that will anger the IRS.” And we can’t say it enough: keep your receipts.

This is just a sampling of the deductions available. You’ll find a more extensive guide here.

4. Be Wary of Audit Red Flags

One big caveat to all of these deductions: the IRS keeps its eye on freelancers for any kind of fudging, so you’ll want to make sure you’re not setting off alarm bells. A few common triggers include:

5. Sign Up for Electronic Filing

Repeat after us: filing your taxes electronically will make your life infinitely easy. Through the Electronic Federal Tax Payment System, you’ll even be able to file your estimated taxes. It takes a little time to set up, but will be well worth it in the end.

6. Use Tax Software Made for Businesses

Likewise, tax software can make your life so much easier, as can accounting programs that automatically create reports and forms for you. File for free through the IRS, or compare a number of good tax programs here.

7. Hire an Accountant

You’re in business for yourself, and you may very well enjoy being totally self-sufficient. But hiring an accountant can mean outsourcing many of these steps. It can also ensure you’re not missing anything, especially in terms of new tax laws. Lastly, a good accountant will find you deductions and loopholes you could have never known existed (unless you wanted to read through a mass of byzantine tax documents in your free time…). All of these things make hiring an accountant an expense that pays for itself, at least in the beginning of your freelance years. Just make sure to do so early before they book up.


Filing taxes as a freelancer can be complicated, but doing so allows for numerous personal benefits. Take the time to learn the regulations and get to know the forms so you can take advantage of all there is to offer and also cover all of your bases.

Still Confused? Check Out This Tax Checklist

Author’s Bio: Adria Saracino is a marketer, blogger, and occasional freelancer. When not consulting on best business practices, you can find her writing about style on her personal fashion blog, The Emerald Closet.

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