For a lot of freelancers who are first-timers, tax season can be an awakening, which makes them aware with how self-employed status is able to impact on their tax situation.
If ever your freelancing is less than a year, it is best that you file your first tax return as a freelancer so you will be able to learn more about what you should do in order to keep your country happy. To give you an aid on knowing your obligations for the tax season and for you future as well, you should consider following the tips provided below:
Income Tax and Self-Employment Tax
If in case you have a freelance business that generate about $500 in every year, you should pay self-employment tax as an addition with the income tax. This mostly surprises so many freelancers.
If you ever work for yourself or perhaps as a 1099 contractor, you will be double-taxed for being an employer and an employee. For most cases, the amount subject for self-employment tax would be about 92% of your net earnings from your self-employment. You can actually calculate your net earnings by subtracting your ordinary and necessary trade or business expense from gross income which you derive from your business.
Estimated Payments Quarterly
It is very important that you consider on putting aside some money in every freelance payment which you acquire so you will be able to get quarterly estimated tax that’s due on January 15, April 15, June 15 and also September 15.
When you started your business back in 2016, you may have not accurately estimated your tax payments because you lack an income history. That year will serve as your guide in order for you to determine how much tax you will be paying for every quarter on the next year.
Do a Solid Recordkeeping
In case you have issues on tax season where you need to put your hands on with all the receipts with the tax expenses as well as the records that are related with your income and tax payments, you should create a solid record-keeping system so you will be able to move forward. This actually will help you in avoiding stresses and to also help you to save time.
Acquire professional Aid
On your first year in the business, you will find that it is really challenging from a cost perspective when you are spending a ton of your time struggling in calculating your taxes or you lack the time in doing it. This would be where a CPA could help you because they will help ensure that you are taking advantage on all your possible tax deductions and credits and will also give you an advice on how you could structure your business and personal finances for you to lower your tax bills.