7 Tips For Filing Self Employed Taxes Without Crying
When I first started freelancing 5 years ago, I was really overwhelmed trying to figure out things like health insurance, taxes, retirement funds, accounting, legal things… probably like you, I wanted to be self-employed because I love being creative, not because I love budgeting.
Disclaimer: I am not a tax advisor. You should do your own research and consult an expert. But, I hope this blog post will be a good starting place and save you from some of the mistakes I made in my first years of freelancing!
quickbooks self-employed and turbo tax are really helpful.
If you forget everything else in this blog post, just get those two programs and you’ll be fine.
QUICKBOOKS SELF EMPLOYED: You have to pay monthly for this (I think $15?) but it’s really nice because it basically tracks all of your tax info throughout the year so that in April, you can just click “Transfer to Turbo Tax” and you’re all set up with the info you need to do taxes. Ideally, I would recommend checking on your info every month whenever you do your budgeting just to make sure things are being correctly categorized etc. To be honest, I usually don’t stay organized about this (one day!), so it takes me a couple hours at tax time to go through it all and make sure everything is set up well to transfer for taxes.
In Quickbooks Self Employed you can track miles, categorize by business expense vs personal expense, and get an estimate of what you should be paying quarterly and what you’ll likely owe at the end of the year. It is SO helpful. There is also an app version where you can click “Start Drive” when you begin driving to something for work and “End” when you arrive and it will automatically track the miles for you! I’ve never used the app but it sounds cool. If you pay for Quickbooks Self Employed, Turbo Tax is included for free.TURBO TAX: This is the best for actually filing and paying your taxes. It will ask you a bunch of questions and all you have to do is answer them and suddenly your taxes are done. I love that it calculates the amount you’ll owe as you go, so you can learn what an impact different life choices made on your taxes. It has been really educational on top of just making taxes WAY easier. You can also of course hire an accountant, but I actually love using this and doing it myself because I feel like I have more control and it’s easier to look over everything before I submit. They have different tiers with different prices, including a free option. If you pay a little bit you can chat with an accountant if you have any questions or have support if you get audited for some reason.
paying estimated payments
Your taxes are not automatically deducted like they would be with an employer, so you should be making estimated payments throughout the year via IRS.gov. You’ll probably pay a small penalty fee if you didn’t do this, depending on current laws.
plan to pay 30% of your income
You’re paying taxes as the business and the employee, so expect to have higher taxes than you would have with an employer. The percentage of your income you will pay in taxes will depend on how much you make. You can Google “2020 tax brackets”, to see what percentage you will pay, but remember to plan on paying more than that since you’ll be paying tax on your business too. Most people recommend setting aside 30% of your income when you’re first starting out for taxes… I’ve found that to be true for us some years and not true other years — it all depends on how much you make and how much you spend on business expenses. (Write offs).
write offs
Speaking of business expenses — make sure to keep good records of anything you spend for your business. It will save you a LOT of money to note your expenses on your taxes. You’ll want to do some research to decide what is considered a business expense, but it can be anything from the cost of supplies to working out of a home office to miles driven for work. We drive many, many miles for photoshoots and other parts of our jobs, and I was surprised at how much money we saved by keeping track of those miles and reporting them on our taxes. This is not the type of thing you want to skip over— every little bit will help you. But of course, make sure to be honest about it all! When you report expenses, you’ll report by category — so it’s helpful to track how much you spend on supplies separately from how much you spent on advertising, for example.
installment plans
If you can’t afford to pay everything you owe, you can set up an installment plan through IRS.gov. Installment plans are a low interest payment plan and you’ll commit to an amount you can pay monthly and have it automatically taken out of your bank account. You can always pay more than what you committed to and pay it off faster through IRS.gov.
tax forms
If you have any big clients that pay you more than a few thousand dollars, they should have asked you for a W-9 form and should be sending you a 1099 form (legally due to you by end of January), which is a record of how much they paid you. You should save a copy of this because your taxes will ask you for the info. If you lose one or don’t receive one that you should have, typically it’s not a big deal, just make sure to report the income correctly.
do not email your tax information
I’ve been asked to email tax info with my social security number so many times by clients/employers— email is not secure. I would recommend using iMessage, WhatsApp, Dropbox or another secure way to send files! I typically delete the files after sending for extra security. Big companies should have expensive programs for sending this type of thing, but I haven’t been able to find an affordable version for freelancers.
you can re-do your past taxes
You can amend your taxes up to three years later if you think you made a mistake at some point! You’ll want to download Form 1040x, follow the instructions and mail everything in (you might need to include a new Schedule C and a few other forms depending on what you are amending). If you did your taxes in Turbo Tax, you can amend them through Turbo Tax too!