There are a lot of upsides to freelancing!
You have more control over your workload and schedule than if you worked a traditional job. You can set your own pay rates. You have more freedom to choose gigs that interest you, as opposed to being stuck with whatever your employer sends your way. You can pursue a variety of projects, so you don’t get bored doing the same thing again and again and again. If you work from home, you don’t even have to put on pants.
But there’s at least one definite downside to freelancing: taxes. As a traditional employee, you don’t bear much of the tax preparation burden. Your social security and medicaid taxes are taken out of your pay before you even get your paycheck. But as a freelancer, figuring out what to pay Uncle Sam, and when, is all on you. And you’ve got to do it. Not only is not filing taxes illegal; it can also lead to a host of consequences, from late penalties to arrest. (And don’t think you’re off the hook if you have a full- or part-time job and only supplement your income with freelance work; if you earn $400 or more a year from freelancing, you’ve got to pay taxes on that income.)
Unfortunately, filing taxes as a freelancer isn’t always easy. The US Tax Code is thousands of pages long, and it changes from year to year. There are a gazillion possible deductions (give or take), and jargon that makes it frustratingly difficult to understand what those deductions might actually be.
To help you navigate the tricky world of taxes, we talked to freelancers in a variety of fields about when and how they file, and how much they budget for it. Here’s what we learned.
"When's the new tax deadline?"
Tax Day Isn’t Only In April (Or July)
The IRS expects earners to use a “pay as you go” system. That’s why traditional employees see tax withholdings on every paycheck. Luckily, freelancers don’t have to file a tax form for every invoice they send out. Instead, freelancers have to pay taxes quarterly.
In order to “pay as you go,” you’ll need to estimate your income using Form 1040-ES. Your estimate doesn’t have to be right on the money, but you should keep in mind that if you end up earning more than you thought you would, you’ll owe the difference in taxes at the end of the year.
Though, if you make less than $2,000 from freelance work, any taxes that aren’t covered by your regular withholdings shouldn’t be too much; you’re probably safe simply reporting your freelance income on your regular tax return. Freelancers who also receive salaries and wages can avoid estimated tax payments by updating their W-4s so that their employers withhold more from their paycheck each month.