If you're a first-time freelancer or entrepreneur, taxes are the last thing you want to think about. The rush of tax-free income is exciting at first, but it's soon humbled by the reality that you should be saving to pay at the end of the year.
Basic taxes done with a W2 and a simple return are very easy, and it can seem like freelance taxes are a whole other ball game. This isn't the case, though.
We're going to clear up some ideas about freelance taxes and get you confident about next tax season.
The Truth About Freelance Taxes
We'll go over four points that touch on common anxieties and myths about freelance taxes.
Hopefully, by the time we're done, you'll have a firmer idea about how to approach taxes as an entrepreneur.
1. You Have Payment Options
You aren't going to have an income tax or social security taken out of the money you make. Most freelancers dread that fateful day in April when they should be paying the sum of their taxes.
It's typically around 15 percent of the money you make. We'll cover some exemptions and things later, but before those, you'll be looking at paying somewhere around 15 percent.
You don't necessarily have to pay that all at once. The people over at www.thepaystubs.com have some good insights about planning out your tax payments. You have the option of paying quarterly and saving yourself the dread of having to put thousands of dollars aside to pay in one lump-sum.
2. Business Expenses are Tax Deductible
You should keep a close eye on what you can and cannot consider a business expense. The little things that would normally slip through the cracks are ones that you can now write off on taxes.
Those numbers add up after a while. You can even start to make purchases that you otherwise wouldn't be able to justify because you're going to write them off.
This even applies to things like advertising expenses and marketing. In this way, you can use the reality of taxes as a reason to push your business forward.
3. You Need to Collect 1099s
If you worked as a freelancer for anyone who paid you more than $600, you need to receive a 1099 from that person or employer.
These are forms similar to W2's except for freelancers. It is the employer's responsibility to provide you with this document and they'll be at stake if they don't.
4. You Can Write Home Offices Off
If you're a person who does most of their work from home already, you might consider investing in a home office. You can write off the cost of the office, the energy, and portion of your home that's dedicated to your work.
This needs to be a room that is solely dedicated to your work, however. You can't pick a room that is sometimes used for something else or make space in an existing room.
Are You a New Entrepreneur?
Taking care of your freelance taxes as a self-employed individual is important. All it takes are a few steps toward managing your money and planning responsibly. It's just one of the pieces that come with being a new entrepreneur.
There's a lot to learn. Visit our site to get more information about how to scale your business and handle your personal affairs.