5 Things Every Freelancer Should Know About Taxes

Latest posts by Paul Koullick (see all)

When I first started freelancing, there were at least a dozen things more urgent to me than taxes. Networking, incorporating, setting up a website, client pipeline… you name it.

It wasn’t until tax time, nine months later, that I realized my mistake. How? TurboTax told me that I owed $13,200 to the IRS. I scraped the money together, but it changed my attitude toward taxes forever. 

Three years later, I’m the co-founder and CEO of Keeper Tax, a service that automates taxes and expense tracking for freelancers. Over the years, we’ve helped over 50,000 freelancers get a better handle on taxes, and the experience has left me with this list of the top five things I wish every freelancer (including my younger self!) knew about their taxes.

Taxes are not withheld from your paychecks

If you’ve only ever worked as an employee, you may be (unpleasantly) surprised to discover that you will not be getting a refund at tax time this year. In fact, you will owe the government a lot of money. Way more than you’re probably expecting.

As a simplistic rule-of-thumb, multiply your freelancing income by 30 percent. That’s about how much you should regularly set aside in your bank account for taxes. For example, if you earn $30,000 from freelancing income, expect to owe $10,000 at tax time.

Lots of things you buy are tax write-offs, so keep records

If you’re self-employed, the government thinks of you as a small business owner. Like a business, you have revenue (paystubs, invoices) and loss (expenses). You get taxed on the difference (profit). 

A lot of freelancers under-estimate what counts as an eligible business expense. They don’t realize that things you’ve been paying for all along, like your phone bill, rent expenses and transportation expenses, might actually be considered tax write-offs. Learning which tax write-offs you’re eligible for is critical to minimize your tax bill.

You also need to record these write-offs throughout the year. Waiting until the end of the year and attempting to remember what Uber rides you took on the way to a client meeting is tough. Odds are, you won’t remember. 

You can probably claim the home office deduction

A lot of solopreneurs assume that in order to claim the home office deduction, you have to have a separate office inside of your home. In reality, the rules are much less strict. 

Unless you have an actual office space that you commute to, it’s likely that the work you do from home will qualify you for the home office deduction. As long as you have a space inside your home or apartment that can qualify as a workstation, which you don’t use for extensive personal activities, you can claim a portion of your rental or home expenses as a tax deduction!

Sign Up: Receive the StartupNation newsletter!

You need to file quarterly taxes

Quarterly tax payments, also known as estimated taxes, are required for most self-employed people. Payments are due four times throughout the year, and the exact dates are listed here.

If you don’t pay them, you’ll owe a penalty at the end of the year; and depending on how much you earn, that penalty can get quite large.

While filing taxes four times a year sounds scary, it doesn’t take long. The simplest way to do so is to assume a 30 percent effective tax rate on your expected self-employment income during the year, and divide that by four. 

All of this applies even if you’re only freelancing part-time

Unfortunately, the government doesn’t care if you also have a W2 job or are otherwise not full-time freelancing. Either way, your self-employment income will be taxed at the end of the year, and any expenses you can claim as tax write offs will help you reduce that bill. The only exception is that you might not owe quarterly taxes (you can check here)! 

I hope that this list helps others avoid the mistakes that I made in my first year as a freelancer. Pass it on!

Previous Article
public relations

DIY Public Relations: How to Be Your Own Biggest Advocate

Next Article

Bamboo Detroit, WeWork and Detroit Water Ice: Starting up in Detroit

Related Posts
Read More

WJR Business Beat: We’re Spending Even More Time Online (Episode 411)

In today's Business Beat, Jeff tells us consumers are spending more time online and explains what businesses need to do to reach them. Tune in below for more details on how digital use has changed with the pandemic:   Tune in to News/Talk 760 AM WJR weekday mornings at 7:11 a.m. for the WJR Business...
supply chain
Read More

How to Keep Vendors and Clients Happy During Supply Chain Hiccups

Supply chain breakdowns are happening due to global disruptions, rising costs and increased consumer expectations. Businesses can't always stop supply chain hiccups, but they can learn from them and limit their impact on vendors and clients. How a business responds to a supply chain issue can have far-flung effects. A company that is proactive and...
Read More

How to Support Employee Mental Health and Avoid Startup Burnout

When it comes to finding the right job — and staying there — candidates are looking for a lot, especially in a virtual setting. Gone are the days where foosball tables and free snacks constituted benefits. Of course, we still love them, but there has to be more that matters. People are primarily looking to...
top fintech startups
Read More

Top Fintech Startups in the Midwest 2022

The Midwest is rapidly becoming home to some of the best fintech startups in the country. Chicago, for instance, is becoming a top tech hub for fintech startups, seeing massive growth and funding for its companies. In Columbus, the city’s long history with top banking institutions has created a fertile ground for fintech startups to...