Tax Tips for Freelancers: How to Survive & Thrive in Tax Season

We’re in the midst of tax season here in the U.S. and that can mean special headaches for freelancers. Never fear, we’ve got some tax tips for freelancers to get you through.

Do I Have to Pay?

Let’s start with the very basic—everybody pays taxes. The threshold for paying taxes on your freelance income may be lower than you think. It’s $400. That’s when self-employment tax kicks in. So even if you’re just getting started or you didn’t make much, you may still have to pay taxes.

Survive: Basic Tax Tips for Freelancers

OK, so you have to pay taxes. But that doesn’t mean it has to be a nightmare. Here are some basic tax tips for freelancers to help you stay on top of taxes and keep as much of your money as you can:

• Get help – The hours you’ll waste trying to parse the IRS legalese could be better spent earning money and paying a professional to do your taxes. You’ll likely still need to do your own record keeping, but a good tax professional can answer questions and handle the heavy lifting, giving you much needed peace of mind.
• Home office – That home office is a handy little deduction, but don’t overlook the details. There are lots of rules for how it works (and a simpler approach). Make sure you’re getting the deduction and playing by the rules.
• Expenses – All kinds of business expenses are deductible, including website hosting, premium WordPress themes and plugins, and online services you use for your business, such as Evernote, Dropbox, etc. Check with a professional, but if you’re buying it for your business, it’s likely a deduction.
• Travel & meals – Certain travel and meal expenses can be deducted, though as usual, the IRS has picky rules. You’ll need to track your miles and keep receipts. Make sure you understand the ins and outs so you’re deducting as much as you can, but not breaking the law.
• Estimated payments – As a freelancer you’ll need to make quarterly estimated payments throughout the year. Sounds harsh, but if you had a regular job you’d be subject to withholdings in every paycheck. Stay on top of your estimated payments—if you don’t pay enough you might get hit with a penalty.
• Refunds – Got a refund? Yay! Free money! We get all excited about tax refunds, but what it really means is you paid too much money to the government. They’re just giving back your money (after hanging on to it for a while). That’s your money. While nobody wants a huge tax bill, a big refund shouldn’t be cause for rejoicing either. It means you need to figure out your numbers better and keep more of your money in your pocket.
• Save for taxes – If you’re having a hard time paying those tax bills, set up a separate savings account for your tax savings. It’s a good way to force yourself to set money aside for taxes and not touch it. Whenever you get paid, transfer a percentage to your tax savings account. When it’s time to pay taxes, you’ve got the money. You might even earn a little interest.

Thrive: How to Be a Tax Titan

If taxes were painful this year thanks to your relaxed record keeping, now’s the time to change. Here are some tax apps that can help you get organized and make tax season a breeze:

Tax Apps:

• Concur – travel, receipts, expenses
• Expensify – tracks expenses
• iDonatedIt – tracks non-cash charitable gifts
• IRS2Go – refund status & tax tips
• Shoeboxed – captures paper receipts
• Slice – pulls receipts from your email inbox

For a simpler approach, just use Evernote. It’s not a tax-specific app, but if you’re already using Evernote it might be easier to use it for your tax records as well. You can snap pictures of receipts and use tags to keep things organized.

Mileage Tracking Apps:

(some of the above apps will also track miles, or you can get a stand alone app)

• Milebug
• Mileage Log+
• MileIQ

More Tax Tips for Freelancers

Tax season doesn’t have to be a pain. Talk to your fellow freelancers and see what works for them. Find a professional to help you through. And most of all, make a commitment now to make next year’s tax season easier. If you need more help with taxes, the Freelancers Union has an entire collection of tax tips and help.