Freelance Taxes: The Benefits and Burdens of Working Solo

Editor’s Note: Want to work for yourself this upcoming year? Get a handle on the basics on freelance taxes here.

Being a freelancer comes with many freedoms like setting your own hours, working from the comfort of your pajamas, and setting your own rates. Yet there are burdens as well. Things like sourcing your own work and managing multiple roles — many related to administrative tasks like billing and collecting payments from clients.

From a tax perspective, freelancers have some benefits, like the new 20% deduction for the self-employed, and some burdens, like keeping organized tax records and filing estimated taxes.

Here are a few of the freelance tax burdens and benefits:

These Tax Burdens Can Be Painful, But Shouldn’t Be Ignored:

1 – Tracking Business Expenses 

You may have heard that keeping good records is critical to getting every deduction you are entitled to and keeping your taxes down. Knowing which receipts to keep with your tax records can make estimated payment calculations and tax prep go a little bit smoother. Good record keeping is also critical to keeping your business afloat and managing your cash flow.

2 – Making Estimated Tax Payments 

Estimating taxes may require understanding tricky expensing rules, like whether you must allocate expenses between business use and personal use. If you don’t plan for these required payments by regularly setting aside a portion of your earnings to cover them, you may discover that you don’t have the cash to make estimated payments when the due date arrives. Estimated tax payments are generally due April 15, June 15, September 15, and January 15. If you fail to make appropriate estimated payments, you may face an unwelcomed penalty when you file your annual tax return. Your quarterly estimates should also include self-employment tax, as explained in the next section.

3 – Self-Employment Tax 

If you’re new to freelancing, you may be surprised by your requirements when it comes to Medicare and Social Security taxes. As a self-employed individual, you have to pay the employer’s share and the employee’s share of these taxes, making your burden twice that of a W-2 employee. But there’s a silver lining: You get to deduct half of your self-employment tax on your income tax return, which lowers the tax you pay on your income and helps make up for these additional costs.

4 – Filing a Schedule C 

As a freelancer, you have to report income and expenses on a separate small business tax forms or Schedule C, which can complicate your tax-filing experience. However, if you maintain good records of income and expenses, you’ll be well-prepared when tax season rolls around.

These Tax Benefits Could Save You Money:

1 – Business expense deductions 

Unlike employees, you can still deduct your business expenses under the new tax law. Freelancers can deduct all ordinary and necessary business expenses, including business mileage, equipment, supplies, software expenses and even the costs of maintaining an office, such as rent. View more information about small business or self-employed tax deductions.

2 – New business income deduction 

Freelancers with taxable income below $207,500 ($415,000 if married filing jointly) will qualify for a new deduction equal to a percentage of their net income, up to 20%. For example, if your net business income is $40,000, you may qualify for a deduction of up to $8,000, in addition to all of your other business expenses. However, your deduction may be lower if you don’t have any other income, because the deduction generally can’t be more than 20% of your taxable income, which takes into account your standard (or itemized) deduction(s). For example, if your $40,000 profit from your freelance business is your only income, and you file as single and claim the standard deduction, your new deduction will only be $5,600.

If you wonder how you will keep up with your tax-filing obligations and want to make sure you’re getting your maximum deductions, remember that Block Advisor is here to help. Then, you can focus on what you do best: growing your business.

Don’t want to tackle alone? Get help with your small business taxes from the team at Block Advisors.


Find tax help in your area.