7 Must-Know Tax Saving Tips for Freelancers

Freelancing Nov 23, 2022

Being a freelancer has some great perks like working your own hours and being your own boss, but there is one aspect that can be a little bit stressful…freelance taxes.

In this article, we’ve got some much-needed tax tips for our fellow freelancers!

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Importance of Filing Taxes

Do freelancers have to pay taxes? Yes, they do!

Taxes are crucial because it’s how we pay the government for the assorted services that are necessary for our day-to-day life from infrastructures like roads and bridges to services like firefighters and law enforcement.

Not paying your taxes can result in hefty punishments including jail time! So, it’s important to pay those taxes.

Tax Saving Tips for Freelancers

Don’t be stressed, though.

If you’re a freelancer who has just come on the scene and wants to be successful, we have some tips that can keep you up to date on your taxes and help you save in the process!

Have Accurate Income Records

At the end of the day, taxes are taken out of a percentage of your income, and it isn’t up to anyone but you to track the amount you make.

In other professions, you may get a 1099, W-2, or a W-4.

In many cases, those forms and processes allow for the company you’re working for to take income out of your taxes.

With a 1099 that may not be the case and in many ways since freelancing can be contracted work, you may get a 1099.

However, as a freelancer, you may be working for multiple companies and clients. This can make it difficult to track all the sources of income and what you make from each source.

How to pay taxes as a freelancer starts with developing a more organized record of your income. You can do this in many ways.

Since a lot of payments these days are electronic services such as PayPal, and also assorted banking services, it can be simple to keep track of that digital history, but it may also help to keep a spreadsheet of payments that makes it more streamlined.

Have a Separate Bank Account for Taxes

The issue with owing taxes at the end of the fiscal year is you may have had emergency expenses that have forced you to dip into your savings or your regular current account.

Then by the time you get to paying your taxes, you realize you either don’t have the money, or that paying taxes may put your account into a bind.

Utilizing a service that allows for mass payments can help streamline the process of setting aside money for taxes, making it easier to manage your finances and avoid any potential shortfalls come tax season.

One way to avoid this is to have a bank account dedicated to taxes.

This way every time you get paid you can use your freelance tax calculator, there are some free options online, and you can move those funds to that bank account.

The main upside to this is that you won’t risk spending any of that money. It will be out of sight and out of mind.

Once tax season rolls around you’ll be able to write a check to the government out of that account and your other accounts will be untouched.

This can be a great stress reliever since everything will be in its place, and you won’t have to worry about digging into any of your regular accounts or funds.

Automate Your Savings

If you aren’t the best at keeping up with moving funds yourself to a bank account, another option can be setting up automatic transfers.

Many online banking services provide an opportunity to set a weekly or monthly transfer.

These are also common in investment apps like Fidelity or Robinhood. If you are looking to move a certain percentage of your income to specific places, these services can help you to manage that.

One of the many benefits is once again, peace of mind. You know that whatever money you have going into your bank account will be moved to the appropriate account, and this way you won’t touch it.

The key is to designate a space specifically for your tax payments.

It can be really easy to justify dipping into your funds when you don’t have them divided accordingly, but when you have a whole other account specifically for taxes it can be of great help in helping keep that portion of your income and business organized.

The other benefit of a savings account is that it can accrue more interest.

Although it may not be the most noticeable shift, if you keep that in mind while looking for the proper bank it can help to build a little bit more money while it sits waiting for tax season.

Keep Your Receipts Organized

When it comes to write-offs and expenses nothing can get you in more trouble with the government than an Audit. This is when the IRS essentially puts your tax payments and write-offs into question.

If it’s discovered that you’ve been writing off expenses that you haven’t paid for or that aren’t relevant, the IRS can demand more money from you or you can suffer much graver penalties.

This is why you must keep all receipts, especially of the items and services you claim.

These days it’s a bit easier since most receipts are digital and can easily be emailed to you and then archived.

In fact, a great way to keep track of your receipts can be to keep a separate folder for those emailed receipts. You can even take pictures or scans of receipts for a backup and keep them in a folder on your computer.

This allows you to easily access them, and keep track of your own records.

In the meantime, you can print out all emailed receipts and file them with the physical receipts you have. Keeping them together with all of your business-related paperwork can really help keep it organized.

We definitely recommend keeping backups. You can scan all physical copies to ensure you aren’t going to risk losing any of them. Better safe than sorry.

Pay Quarterly to Avoid Penalties

If you don’t want to be overwhelmed by the large tax bill that comes at the end of the fiscal year, or you don’t feel like you can keep track of all of your expenses and income within a year, paying quarterly can help ease that stress.

Paying quarterly means you pay your freelance taxes four times throughout the year, this can really help you to keep up with your taxes without losing sight of your finances. It can be overwhelming to do one big payment by April 14th.

That date is still included in the quarterly payments, but here are the dates laid out, so you can get an idea of how often you would have to pay:

Income Period:	Tax Payment Due Date:
January 1st - March 31st	April 15th
April 1st - May 31st	June 15th
June 1st - August 31st	September 15th
September 1st - December 31st	January 17th

These should help you to break up your tax payments in a measured and manageable way.

Track Your Business Expenses

Keeping an eye on your expenses is crucial because you want to make sure you aren’t paying for materials or services beyond your means. When tax season comes along you need to be able to have the funds to pay.

Tracking your expenses can help you to have a better eye on what your business requires throughout the year and can help you budget better.

The other important reason for tracking expenses is for write-offs. Write-offs allow you to use expenses that you utilized for your business and subtract those costs from your taxes owed.

For example, if you are a freelance writer you can possibly write off purchases like your laptop and your internet service. So keep track of all the information and material. You never know when you will need it.

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Hire a Professional CPA

You may think that it’s backward to spend more money on tax services when you’re already going to be charged a fair amount, but a CPA can be one of the best investments as a freelancer.

CPA stands for Certified Public Accountant, and these folks have a plethora of knowledge when it comes to accounting and taxes. Understanding how to report freelance income can be overwhelming, so you could use some help.

The beauty of a CPA is that they know the rules, the numbers, and best of all…they know the write-offs. Especially as a freelancer, you may not know what you are able to write off. These folks know, and can help you save money in the long run.

We mentioned expenses earlier. A lot of the time, you never know what you may be able to write off. This is where the CPAs are the masters. They can help you save money in that way.

The other great aspect of a CPA is that they can keep your finances in line and keep track of every year or quarter of your taxes.

Conclusion

These were some of our tax-saving tips for freelancers. In order to be a successful freelancer, keeping your taxes in line is crucial, however as long as you keep your finances organized and stay aware you can conquer those taxes every year!

About the author

Veselin Mladenov is the Content Manager of ThriveMyWay. He has more than 10 years of experience in the field of corporate marketing and sales, and decided to pursue his passion - digital marketing and content creation.