Being a freelancer comes with its share of perks, such as being able to more-or-less dictate your own schedule and be your own boss. Of course, there are some hassles that come along with self-employment, like having to do your own taxes. If this is your first year filing your taxes as a self-employed individual, there are some common mistakes you'll want to avoid that could cost you.
Overlooking Self-Employment Taxes
Perhaps the biggest hassle related to paying taxes as a freelancer is that of self-employment tax, the current rate of which is 15.3% of your taxable income. With a traditional W-2 job, your employer would pay half of this. When you're self-employed, however, you're responsible for paying the full amount — and you can face hefty fines and penalties (along with interest) if you fail to pay it in full or in a timely manner. Most freelancers will find that it's easiest to pay all their taxes (including self-employment tax) on a quarterly basis, and this may even be required in some cases.
Missing Out on Deductions and Credits
The good news is that there are plenty of potential deductions and credits you could be eligible for as a self-employed worker. One of the biggest deductions to consider is the home-office deduction, which allows you to deduct a portion of your mortgage or rent payment from your taxable income for any dedicated office space you use solely for your work. Be sure to research and take full advantage of all credits and deductions to which you are entitled.
Failing to Report Every Source of Income
It is your responsibility to report all sources of income when you file your taxes — even if they're not reported on a 1099. Failing to do so could constitute tax evasion and could lead to major problems for you down the road. It's best to keep a detailed spreadsheet to track all your income from various sources throughout each tax year; never rely on 1099s to calculate your income.
Foregoing Professional Assistance
Filing taxes as a freelancer, especially for the first time, can be difficult. Don't hesitate to work with a tax preparation service or other tax professional to get the help you need. A tax professional can make sure your returns are accurate and that you're not leaving money on the table. Being able to file your taxes with peace of mind is worth the small cost you might pay. And when you're self-employed, those tax preparation fees are deductible, anyway!
Contact a resource like Jeffrey Beebe CPA in order to learn more about tax preparation services.
When it comes to keeping your business afloat, there aren't many things more important than looking after your finances. If you aren't careful, financial problems can get out of hand quickly, which can affect your ability to stay in business at all. I run a small business out of my home, and I can tell you that careful attention to your books can make a world of difference. Check out this website for more information about financial considerations, spending, and monitoring your bottom line. I'm not a professional accountant or anything, but by making a few moves in the right direction, you can solidify your business and avoid financial disaster.