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The Side Hustler: How to File Taxes for Freelance Work

Key Takeaways

Everyone Pays

No, being a freelancer doesn’t mean you don’t have to pay taxes!

Prep is Important

Taking certain steps BEFORE tax season can make the process easier.

Ask for Help

When in doubt, just get help! A credit union can provide affordable tax prep.

Freelance work, both part-time and full-time, has some pretty outstanding perks. For one thing, you don’t have to attend any meetings. Also, you don’t have someone supervising you on that work; you can get it done whenever. You want to sit at your desk like an “adult” — whatever that means — and sip coffee while you work? Go for it. You want to get your freelance tasks done while relaxing in the bathtub? There are no rules!

Okay, so that’s not exactly true. You still have clients to talk to and deadlines to meet. You just get a little more control and the freedom to say no to projects that don’t suit your vibe.

However, one thing that many people do not tell you when you start freelancing is: the taxes can be kind of outrageous. If you don’t know how to file taxes for freelance work, you could end up in serious trouble once tax season arrives. Luckily, we’re here to help. We’ll make sure you don’t get destroyed by the filing process (or the IRS).

The Basics

I do some freelance work on the side. So does my neighbor. During a random chat, he said “it’s great being self employed because you don’t have to pay taxes!”


If you thought you didn’t have to pay taxes on your freelance income, well…

how to file taxes for freelance work

Reality check: you do have to pay taxes, even when you’re self employed. Sorry ‘bout ya.

So if you’re used to getting a tax return but you’re making the shift to freelance work or self employment, get ready for a shock come tax season. That return might be significantly lower, or, if you’re fully self employed, you won’t get a return at all. In fact, you’ll have to pay money.

Why? Because at a traditional full-time job, not only does your employer pay half of your social security and medicare taxes, but those taxes are taken out of your paycheck before it even lands in your bank account. Unless you’re looking closely at your pay stubs, you may not even know how much is taken out. You’re still paying taxes, but it doesn’t necessarily feel like it.

But if you’re a part-time freelancer, you have to pay income tax on your own.

If you’re a full-time freelancer, you also have to pay social security and medicare. And, because you are considered both employer and employee, you don’t have an employer to pay half.

There are a few different ways to tackle these hefty tax problems, from saving throughout the year to switching it up and doing quarterly taxes. We’re going to teach you how to file taxes for freelance work. First, let’s talk about the factors that make the amount you owe larger.

The Freelance Life is Hard Enough as it is.

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The Self-Employment Tax

If you’ve never heard of the self-employment tax, that’s understandable. You’re probably feeling a lot of things right now, like “WTF.” We get it.

wtf gif

The self-employment tax covers the social security and medicare taxes that we already mentioned. It’s a 15.3% tax that the IRS expects you to cover.

While the self-employment tax does cover your social security and medicare, it does not cover your regular income tax rate. So, if you’re a full-time freelancer, with every check you receive, it’s a good idea to set aside 25–30% of it for to cover both self-employment tax and income tax.

If you’re feeling overwhelmed, don’t worry. You can calculate your taxes with this form provided by the very same IRS.

What if You Don’t Make That Much?

Okay, so we’ve covered full-time, but how to file taxes for freelance work when you only freelance part time? And like, we’re talking really part-time — as in you only do a little freelancing every month.

Well, unfortunately, if you earn even just $400 from freelancing in a given year, you’re going to have to pay taxes on those earnings (about $100 depending on your deductions).

(Also, if you’re doing a lot of freelance and you don’t make $400, maybe you should raise your rates? KNOW YOUR WORTH, DAMMIT.)

Bill Murray you're awesome gif

When to File Freelance Taxes

Like everyone else, you’ll usually have to pay taxes by April 15, but thanks (I guess) to our friend, the Coronavirus, you now have until July 15, 2020.

There’s a good chance you’re going to have to pay a significant amount in taxes at that time. Most freelancers make below $2,000 each year, and if that’s you, you can probably just pay it all at once. However, more than $2,000 a year in freelance money means a big payout, which can be painful to do all at once — but there is a way to soften (or spread out) the blow for next year.

Pay as You Play

We put that fun little headline there to distract you from the fact that you still have to pay taxes. Fun, huh? No? Well, we tried.

One alternative that many freelancers choose is paying quarterly taxes throughout the year so that they don’t get disrupted financially by the Big Bill (we’re capitalizing that from here on out).

The IRS recommends that anyone who’s going to pay more than $1,000 in taxes should pay quarterly to avoid that Big Bill. But how do you know how much you’ll need to pay in advance? Well, once again, the IRS is here to help. Their form 1040-ES can help you ballpark those projections so you can make an informed decision. However, that form means you’ll need to make estimates, and any income beyond what you estimated will be taxed the same as always on April 15. So be prepared.

The Dreaded Forms

Before tax season, you’ll often receive a 1099-MISC from any client who paid you over $400 total for the year. However, some clients now pay through PayPal or Zelle or online systems, which means they’ll send a 1099-K. However again, they aren’t required to, unless they pay you a lot and often ($20,000 or 200 times, whichever comes first).

You’re still responsible for all taxes even if you don’t get a form. In that case, you’ll need another form: a schedule C form.

A schedule C tax form is where you’ll put all your freelance income, including both amounts on 1099 forms and those not disclosed.

Don’t Forget to Deduct

Many freelancers don’t know how to file taxes for freelance work. In fact, around 70% of freelancers forget to deduct anything from their taxes, and you can save a lot by doing so. You can claim deductions on any expense that, according to the IRS, was “ordinary and necessary” to your freelance business. And that does not include, say, ice cream or all the Advil you need when dealing with difficult clients!

Seriously, don’t put down fake stuff — that’s tax evasion. Or fraud. It’s one of the two, and they’re both bad.

tax fraud Simpsons gif

However it does include things like advertising and marketing, office supplies, computer equipment and software, travel or business meals (like McDonald’s, am I right? Ha! Again, tax evasion and fraud are crimes), home office or utilities.

The easiest way to keep track of expenses is to open up a second checking account for your business expenses. Having your paychecks deposited into this account also makes the process that much easier, especially if you’re using a service like QuickBooks. Consider opening that second account at a credit union if you want to get better interest rates and save money on fees.

Ask for Help

If you were wondering how to file taxes for freelance work, you’re probably realizing it can be a hassle, especially for freelancers. Doing freelance work means being diligent with your time and, as you now know, your money as well.

One way to ensure you pay the right amount and get all the deductions you can is by hiring a professional. The best place to do that? A credit union! Unlike banks, credit unions don’t profit off you. They were created solely to help the working class and encourage wealth distribution. That means they offer more personalized financial services — including tax programs!

In fact, credit unions are exempt from corporate income taxes. They were granted this exemption under the understanding that they would provide financial services that were inaccessible elsewhere to lower-income individuals.

This doesn’t mean you won’t pay income tax if you have a credit union, but it does mean that you can find more affordable financial guidance and tax preparation services.

Every Little Bit Counts

Better interest rates, fewer fees — it all adds up in the end.

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