As a freelancer, paying taxes looks quite different from being a full-time employee. Instead of an employer doing most of the leg work for you by withholding a percentage aside from each paycheck, you’re now in charge of your own taxes. Exciting, right? Well, it’s about as exciting as taxes can be. You’ll be responsible for making payments to the IRS, tracking your expenses, and managing your income as it comes in. If this sounds complicated and you’re not sure how to pay taxes when freelancing, don’t worry — we’ve put together some tips to help make the process a little easier.
Picture this: paying taxes not only feels like a mission you can accomplish, and something that doesn’t stress you out. The key to this? Getting prepared and being proactive to set yourself up for success.
Put your tax withholding on Autopilot
Much like an employer would automatically take a percentage out of each paycheck to pay the IRS, you can do this with each individual payment you receive. As a freelancer, you are probably getting multiple payments from many various sources, so it’s important to stay on top of them. The process doesn't have to be complicated though. Avoid it being a difficult maze to navigate by automatically setting up how much you want to save per payment so the taxes you need to pay are already covered each quarter.
Understand the difference between each state’s taxes.
Say you live in New Jersey, but are getting paid by clients in New York. You’ll have to pay different percentages based on each state. Now, let's say, you have remote clients or income sources across the country, it’s easy to see how this could get confusing quickly. Make sure you know where each payment is coming from, and how much you’re responsible to pay for your self-employed taxes per state.
Track your business expenses.
The great news about being a freelancer is that you can write off a lot of your business expenses. Writing off means that whatever tax you paid on a good or service for your business — think photography equipment, renovation costs for your Airbnb, or new hair dryers for your salon — can be deducted from your taxable income!
Keep track of those receipts so when it comes time to pay your self-employed taxes, you can get as much money back as possible. There are a bunch of software options to help you keep track of all your expenses so that when it's time to get your paperwork together, it will be a breeze.
Don’t pay penalties. Pay your taxes each quarter.
To avoid paying penalties or a huge annual tax bill, it’s best to pay freelancer taxes each quarter so you’re ahead of the game. You’ll have to estimate how much you’re going to make for the year, and then work back from there. If you overpay your quarterly taxes, don’t worry — you’ll get a refund. Think of it like you’re squirreling away nuts for the winter. Quarterly taxes are the nuts, the IRS is the tree. Come spring (aka your annual return), anything you’re owed will get paid back to you.
Prepped for next year. It’s never too early.
Now that you’re putting your tax withholding on Autopilot, paying your quarterly taxes, and tracking your business expenses this all feels way easier to figure out, right? Also, if you can afford it, hiring a bookkeeper to go through your books every quarter certainly doesn’t hurt. They can help make sure everything is in tip-top shape and ensure that tax season is a breeze.
At Catch, we’re on a mission to support the freelance economy. With Catch, you can seamlessly route your income for taxes, retirement, and savings, in addition to getting health insurance at the lowest possible price. Let us take care of the tedious tax process, so you can focus on the reason why you started freelancing in the first place.