You’re a busy freelancer. We get it, and we get you. You may wonder if what you do and how much you make has a bearing on how you pay taxes and how much you will owe. The simple answer to this is yes. We have some useful tips you should know about your freelance business — and your taxes.
There are many factors you have to consider. You need to keep track of all of the relevant details for your business, such as miles, meals, equipment you use for your business, and other “simple things” that allow your business to thrive. If you are going to stay safe from Internal Revenue Service [IRS] penalties and fines- you need a tax pro to help you do your tax preparation.
The IRS considers freelancers, solopreneurs, and independent contractors all the same. The primary concern is how these self-employed individuals have set up their businesses. According to a study done by Upwork in 2019, more than 53% of workers aged 18-22 are freelancing. This was pre-COVID, and by many accounts, the numbers are even larger now.
Freelancers are self-employed-frequently referred to as independent contractors.
Solopreneurs are individuals who run their own businesses (hence the term “solo”). The business often takes the form of a sole proprietorship, a single-member LLC, or an S Corporation.
Most companies hire freelancers on a short-term or part-time basis and compensate them differently from full-time employees. Additionally, freelancers have the flexibility to work a certain number of hours and do not commit to a work schedule as most full-time employees do.
Millions of creators are already making a living from freelancing jobs, working full-time -we know; we work with many of them. So, yes, freelancing is just like any other career, but the biggest difference is that freelancers have no boss.
Another important distinction is how freelancers are compensated. After a freelancer provides the required services from the company that hires them, the buyer makes the payment directly to the freelancer without withholding any taxes.
The IRS considers freelancers as self-employed individuals. When paying taxes, freelancers have to file as business owners and therefore the IRS hits them with extra taxes in the form of the self-employment tax. There are two types of freelance taxes you need to understand:
Common tax deductions for freelancers are:
Engaging a tax professional makes it easy to avoid penalties and lower your tax burden. Plus, a tax professional can help you prepare your taxes correctly and avoid issues with the IRS .
Semaphore can help you with all the legal requirements and ultimately file all tax forms on your behalf. We understand how to navigate all the tax deductions that most freelancers have; plus, we will prepare your taxes for you. While it can seem overwhelming, it does not have to be.
For more information, fill out the contact form at the bottom of this page or call us at 866-736-2444, and we’ll get back to you.