Being your own boss as a freelance professional comes with exciting perks, amazing hours, and unrestricted living and working.
If you stay organized and plan accordingly, you’ll find that being self employed might be one of the the best tax strategies available.
Follow these three smart and strategic tax tips and you’ll soon find another reason to love working for yourself.
1. Organize, Organize, and Stay Organized
The first thing you realize when you become a freelance professional is that you face more paperwork, more daily duties, and record keeping than when you were a regular employee.
But if you plan ahead, keep great records, and stay organized, being self employed will turn from intimidating to offering some of the best tax benefits available.
2. Understand How You Will Be Taxed
I cannot stress this enough: being victorious during tax season will require you to know how your income will be taxed. Self-employed professionals are taxed in a completely different way than a basic employee.
Freelancers will be taxed on their net self-employment income. This means you will be taxed after various business expenses have been deducted from your overall (gross) business revenues.
Also, there will be two separate federal taxes applied against the net income of a self-employed professional: income tax and self-employment tax.
Third, be aware that you, as a self-employed person, will not have taxes deducted from your pay. This is in contrast to what happened to your paycheck as an employee. Because of this, the smartest action to take is to remit tax payments periodically throughout the year in the form of estimated taxes.
3. Know Your Tax Deductions
Here’s where you’ll save yourself some money – on your tax deductions. Just like freelancers are taxed differently, they also have access to different tax deductions.
As much as you studied up on how you will be taxed, become even more familiar with all of your available tax deductions.
Some of the most relevant and beneficial tax deductions are healthcare expenses, equipment purchases, home office expenses, business assets, depreciation (section 179), services, travel, and supplies.
For instance, if you’re traveling this week, don’t forget to keep your receipts for things like airfare, taxis, and car expenses since you may be able to deduct these expenses if they are directly related to your business.
If you’re a freelancer, TurboTax is up to date with the tax deductions and credits you’re eligible for and will help you keep more money in your pocket.