Freelancing and self-employment has been growing in popularity in the past few years in the post-pandemic workplace. With perks like working remotely and setting your own hours, freelancing can seem like a dream job to some but the tax burden of self-employment is not for the faint of heart. In order to avoid major surprises at tax time and reduce what you owe to the IRS, it’s important to keep tabs on your taxes year round. Here are our top tips for managing taxes and planning for freelancers.

The first thing you’ll need to do is understand the different 1099 forms you might receive when working as a freelancer. These will differ based on whether you sold goods or services and who you were selling to. You’ll receive a 1099-K form if you have been selling goods or services through an app or doing gig work on a platform. This includes receiving payments via PayPal or Venmo. You’ll receive a 1099-NEC form if you are offering goods or services to another business. A 1099-MISC is a form you should receive for miscellaneous income that doesn’t fit into the other two categories – things like rent for landlords, receiving prize money from contests or awards as an attorney.

One of the major perks of being self-employed is the ability to deduct your business expenses, but it’s important to differentiate between business and personal expenses. Some common business deductions for freelancers include a home office space, any equipment or software used for your work, insurance, marketing and travel expenses. The situation gets a little grey though when business expenses bleed into personal use as well. If you use a laptop or cell phone for your business 50% of the time and also use it for personal use, you won’t be able to deduct 100% of your costs associated with it, but instead 50%. Vehicle deductions are another area where this typically comes into play. Be mindful that with any of these expenses, you’ll need to keep clear and detailed records in order to claim these deductions on your taxes. It can be helpful to open a separate bank account or credit card to keep track of these expenses in order to simplify your filing experience.

With freelance taxes, you’ll most likely need to pay taxes in quarterly installments throughout the year to avoid any penalties. This means calculating what taxes you might owe at several times throughout the year, forecasting your future income and deducting expenses. This can be overwhelming and challenging for small business owners and self-employed individuals with a lot on their plate. An experienced accountant can help you manage the tax load of self-employment and keep you updated on any changes to the tax code that might affect you. At ClarkSilva, we’re not only well-versed in tax preparation and bookkeeping for self-employed individuals, we’re also a technology-forward firm with the ability to help you from anywhere you reside. Don’t hesitate to reach out to us today if you have any questions on taxes for freelancers.