Freelance workers and sole proprietors enjoy numerous desirable freedoms – schedule flexibility, ability to work from home, workplace control, the list goes on. But this special freedom comes at a price. When tax season arrives, freelancers oftentimes face more tax challenges than full-time employees. If you fall into this category, be sure to pay attention to all the tax rules and regulations so you can avoid penalties down the road.
Here are a few points to keep in mind when paying taxes as a freelance worker or sole proprietor:
Keep Track of all Income and Expenses
Before you even get to tax season, plan ahead by keeping track of all pertinent information. Make sure you keep a file of all invoices and deposits, so you have a clear log of the exact amount earned in a given year. Similarly, keep receipts and all other records of business expenses. Need help with the filing process? We have some clever ideas on how to organize your receipts.
Additionally, we recommend setting aside a certain percentage of your earned income to account for the taxes. Freelancers are required to report anything over $600 for the year, so after you accrue that amount, earmark a percentage for taxes so your bank account doesn’t take a hit later.
Enlist the Help of a CPA
Paying taxes as a freelance worker or sole proprietor is tricky business – don’t go it alone. A CPA will have greater understanding of tax laws and regulations that you may not have considered, which will prevent you from being penalized by the IRS. Plus, a CPA can advise which expenses should be written off to increase your tax return. Make an appointment with one of our qualified CPAs today.
Determine if You Should Pay Quarterly or Yearly Taxes
As a sole proprietor or freelancer, you are given the option to pay taxes on a quarterly or yearly basis. If you are a sole proprietor who makes a sizable income, we recommend paying estimated taxes quarterly to avoid being penalized. The amount you owe in quarterly estimated taxes naturally depends on your income, but the IRS Form 1040-ES includes a worksheet with estimated totals. Ask your tax professional for guidance during this process.
Write Off Applicable Expenses
One huge advantage of working remotely is the numerous tax write-offs you are eligible for. Possible deductions include:
- Office space
- Technology and supplies
- Travel Costs
Even if you’re not sure if you can pay taxes, it is crucial to always file to prevent being penalized by the IRS. Additionally, it’s important to calculate your quarterly estimates as accurately as possible so you are not underpaying your taxes. Our CPAs will help calculate your tax payments to ensure optimum accuracy.
Tax season doesn’t need to be dreaded for freelance workers and sole proprietors. Keep a clean log of all income and expenses, and our team will handle the rest. Call us at 970-378-4830 to set up an appointment today.