How to Pay Taxes as a Freelancer: Tips for Tax Season

Tax season is right around the corner. So how do freelancers pay taxes? Before the Tuesday, April 18th deadline rolls around, OutVoice has compiled some helpful advice from tax professionals to help freelancers navigate the ins and outs of doing their taxes.

Do freelancers have to pay taxes? 

The answer is a resounding yes — if your net income was over $400 from freelancing, you need to report it to the IRS.

“The bottom line: if you’re doing something for money… it’s taxable,” Jonathan Medows, a New York-based CPA who specializes in freelance taxes, said.

Confusion can stem from clients not sending out 1099-MISC forms, which they send if they’ve paid you over $600 in a year, but even if they don’t, you still have to report that income. The deadline for businesses to send out 1099s is February 1, but Kelly Phillips Erb, a tax attorney, recommends giving your clients some leeway before aggressively following up, especially in the time of pandemic and postal delays. 

Start with a polite email — if your 1099 isn’t in your hand by tax time, then you’ll still need to account for that income on your Schedule C form, which documents your income and business expenses. 

Most freelancers file taxes quarterly. If you don’t file on a quarterly basis, you’ll potentially receive a penalty when tax time comes around. You’ll also get a huge tax bill that you’ll have to turn in all at once, rather than breaking it up over the course of a year. According to Medows, freelancers should be putting away 30 percent of their income for taxes. 

Consider hiring an accountant

And there is the age-old debate: should you use an online tax program, like TurboTax, or hire an accountant? For freelancers, most tax experts advise that you hire an accountant. 

If saving money by using a program is what you’re after, Phillips Erb points out that oftentimes, the more complex your taxes are, the more the price of the program goes up, to where it’s comparable or more expensive than hiring an accountant. 

“Your time is how you make your living,” Phillips Erb said. “If you spend two or three days getting your taxes together, that is time you could’ve been working. It’s wasted money… When you’re doing the calculations of Turbotax, don’t forget the value of your time.” 

In the frequently changing landscape of taxes, it’s helpful to have a person who’s familiar with new rules and deductions you could be utilizing, as well as someone who’s familiar with your personal situation.  

“Freelancers fly by the seat of their pants because they’re doing everything on their own,” said Medows. “They need to stop and get help to bring it to the next level, make more money, mitigate their liability, protect themselves.” 

To find an accountant, Phillips Erb recommends a similar process to finding a new hair stylist. Ask a friend or someone who’s in a similar professional situation, or Google it. If you hire an accountant, it’s best to make sure you’ve made arrangements with them well before their busy season.

However, if you’re set on doing taxes through TurboTax, experts say you still need to be cognizant of all your income sources to make sure you’re properly reporting and to review the final result to make sure it’s correct. 

Understand your expenses

As a freelancer, it’s vital to keep track of your expenses throughout the year. You can count money you spend that’s “ordinary” (meaning something that’s a regular expense in your profession) and “necessary” to your job, according to the IRS. 

“Think about who you are in context,” Phillips Erb said. “If Jason Sudeikis is freelancing, his lifestyle and his home office might look a little different than mine.” 

You can’t expense every little thing. However, you can get away with writing off some things regular employees cannot. A home office deduction, travel for work, health insurance, your car (if you use it for business purposes), your cell phone bill or laptop are all fair game. If you network with someone and that leads to billable work, you can write off your meal. 

Beware of possible audit

The best way to make sure you’re in the clear if you’re audited is to save and annotate receipts. They don’t even have to be physical receipts — you can scan and save them on your computer.  

Taxes are difficult and byzantine. But the best way to make sure you’re safe is by documenting your income and expenses and reporting accurately. No rounding.

If you’re audited, Medows said, reach out and be polite and cooperative. If you ignore it, it’s not going to go away, it’ll get worse. And if you feel like you’re in over your head, get help from an accountant. 

“You want to be smart,” said Phillips Erb. “But if you over- or understate [your expenses] by accident, I wouldn’t lose sleep about it.

Clara McMichael is a New York City-based reporter who covers politics, international affairs, and climate change. She has written for Slate, the Guardian, Mic and the Christian Science Monitor. She previously worked at ABC World News Tonight.