Not every one of us prefers to leave home every morning or sit on the office chair all day or to be bound by the traditional 9-to-5 job. Sometimes, being your own boss can be exactly what you may need. And, for those who have completely disregarded being a clockwork mouse, freelancing comes to the rescue. Freelancing has become a rage among the millennials recently. Not only does it give them the time to multi-task and hone their skills, but also, allows them to earn some extra cash. All in all, freelancing is evolving as an absolute choice for people who want to enjoy self-dependency at its best.
The benefits of freelancing are humongous. Women no longer have to make the tough choice of embracing motherhood over their careers. Students can continue to study and earn experience at the same time, and working from remote locations is also an absolute reality. But, what happens when you have to pay your taxes? Yes, freelancers are also obligated to pay their taxes. And since you do not have an employer taking care of your Medicare and social security tax, it is your responsibility to get things done at your own end. So, here’s how you can be your own boss and pay taxes like a pro:
Know What Type Of Business You Have
Tax laws apply differently to different businesses. An LLC, S-corp, C-corp, or sole proprietorship are all separate and are uniquely affected by the tax code. Since you are a part of the gig economy, you have to understand how you will be impacted. If you are unclear about your self-employment status, the air needs to be cleared. Seeking professional advice is strongly recommended.
Hire A Tax Professional
A CPA or a professional tax practitioner can guide you through the toughest phase, i.e. the stage when you are starting out as a freelancer. Dynamic changes are common in the initial stages, and you may not be familiar with the tax law for freelancers. There is a lot to think and take care of, and since you are the sole proprietor, things may get a little mushy when it comes to taxes.
As a freelancer, you already have a lot on your plate. And if your finances are going haywire, it would only be better if you hire someone to handle the job for you. Once you are familiar with your tax process, you can get hold of things.
Switch to Tax Software Hosting
Business management is easier said than done. Everything has to be taken care of every day, and you cannot postpone a core task for another day as it can have serious repercussions for your business. Accounting and tax software can help in streamlining a number of tasks for you. And the good news is, you can also host your preferred software on the cloud, thus making freelancing a lot easier for you. Freelancers can opt for QuickBooks hosting to smartly manage their business as well as taxes, all at the same time.
Learn How To Make Estimates
If you are not opting for a tax professional, it is advisable to learn how to make your own estimates. You may be using a professional tax suite to do your taxes, but you still need training from a professional. To do your taxes pleasantly, without delays, learn how the tax system works and make your payments when the time is right.
Prepare Yourself For Everything
Do not wait for the bells to ring. Visit your finances regularly and manage your savings efficiently. If you know you have to pay taxes, save up for them separately. Experts advise the freelancers to open a savings account for the taxes. If you are not sure how much you need to save every month, you will again need advice from your tax professional.
Be One With Your Deductions
The problem with freelancers is they think they cannot deduct anything. Well, you may be surprised but you qualify for a number of deductions in some way or the other. A major chunk of freelancers leave huge deductions on the table and naturally, they end up paying way more than they were supposed to. Keeping inappropriate deductions aside, if there is anything that your business needed for a smooth run and you paid for it, mention it on your tax return. For example:
First, the mileage incurred when visiting a client for business,
Second, the registration fees and money spent to get your business license,
Third, the amount paid for health insurance, both by you and your family, etc can all qualify for a tax deduction.
But always remember that you cannot deduct everything.
Plan Your Future Ahead
Freelancers too have the right to plan their future. You cannot work forever and retirement should be an option for everyone. Just like salaried people, a solopreneur or freelancer can save up for a happy and peaceful retired life. Besides ensuring you a secured future, it also has tax benefits associated with it. Contact your tax professional to understand how a SEP-IRA works. SEP-IRA is a retirement account for freelancers and sole business owners, where you save for your retirement, both as an employee as well as an employer. You can also opt for a pre-tax or post-tax account, just as a Traditional or Roth IRA.
Tax season can be tough and you might have to postpone some of your plans to get your finances in line. But some things are best-tackled in time to avoid tripping later. Keep a track of your invoices and payments, manage your expenses, save up for taxes, and keep in touch with the changing tax laws to have a stress-free tax season every year.