Are you living the freelance life? Are you an Etsy seller, a word wizard or a wedding photographer? Most of us envy the freelancer’s life: no clock or commute and the possibility of a mid-day dance break to get the creativity flowing. But, truth be told freelancers have to do their own taxes and well… that’s no fun.Independent contractor taxes can be confusing but we are here to help.
Here are some FAQs on how to pay taxes as a freelancer
How much do I have to make to pay taxes?
You have to pay taxes if you are making over $400 from client work, your Etsy store or photography business.
But my side hustle isn’t a “business” do I still have to pay?
Yes! Don’t let the words “business” or “self-employment” faze you; you need to pay taxes as long as you earned income outside of your full-time gig.
How much will it be taxed?
You owe taxes on the profits, meaning: your total income minus your expenses but remember, you are now considered employer and employee, so you are now double taxed. That means roughly 20% or 30% of your income. If you don’t have an accountant yet and have no idea how much to set aside start with 30%, it might be more or less, but it’s a good ballpark.
How do I file?
You have to use a 1099 from each one of your clients, in case you haven’t received one gather all of your invoices and records; just add up your invoices for the year and submit it. Be sure to double check each 1099 you receive.
And what happens if I don’t want to?
Tax evasion is a huge deal, remember the 1099 form? You get one, and the IRS does too, your records aren’t going to match up with what the IRS already has on file, and tax audits happen more often than not.
Can I claim my home as a home office? What can I deduct?
Yes, you work from your couch, but that doesn’t mean that it qualifies as an office, however, if you have a designated work space at home and it’s solely dedicated to your business.
No one wants to miss out on tax deductions that they qualify for, fortunately there a number of simple personal tax deductions, business tax exemptions and estate tax deductions you may be eligible for.
Do I need a pro?
You can do it yourself but it’s always good to hire an accountant that can help you get started and make sure you are covered. In the meantime, If you have questions about filing taxes or IRS tax audits, you can always ask a lawyer.
Rocket Lawyer is not a legal firm and This guide doesn’t replace legal counsel.