If you’re a freelance service provider such as a writer, designer, or web developer, you enjoy a greater degree of freedom in your work compared to full-time employees. However, you also have different tax requirements that need to be kept in mind during the year for tax preparation. If you’re hazy on the specifics of freelancer taxes, this quick guide will help get you up to speed.

Tax Requirements for Freelancers

Self-Employment Tax

Full-time company employees have Social Security and Medicare taxes taken out of their gross pay; these taxes are also matched by their employers. Freelancers, on the other hand, have to cover this entire amount themselves. This is known as the self-employment tax. The rate of this tax is 15.3% on any amount earned from freelance income that exceeds $400. This tax is in addition to the regular income tax you’ll pay. When tax preparation time comes, you’ll need IRS Schedule SE in addition to other forms to report self-employment earnings.

Paying Estimated Taxes

Although freelance income fluctuates, if your income is high enough to require paying over $1000 a year in taxes, consider paying estimated taxes on a quarterly basis. In fact, the IRS can penalize you for not paying “quarterlies” if the tax owed is over $1000. Ask a tax preparation professional to help you estimate and set up quarterly payments. If you overpay, a refund will be issued. If estimated taxes aren’t enough, you’ll be responsible for paying the rest at tax time. Those who opt not to pay quarterly taxes should save between 25% and 30% of each client payment to have enough to cover their tax bill.

Keeping Good Records

It’s crucial as a freelancer to keep good records, both of your income and your expenses. Freelance clients who have paid you over $600 in the tax year will usually submit a 1099-MISC form to the IRS that reports that income, and you should receive a copy as well. However, if you use PayPal or other online payment platforms, employers may send a 1099-K instead. Contract clients aren’t required to send this form, so keep track of all income in a spreadsheet along with deductible business expenses. Freelancers can use home office space, some travel expenses, education, supplies, and other business expenses as deductions to offset taxes. Since many of the areas are ambiguous (such as what constitutes a legitimate travel expense) it’s best to keep all receipts organized and submit them to a tax service to avoid unpleasant discrepancies or an audit. Schedule C is the form you’ll use to report 1099 income.

Working as a freelancer is rewarding, but the taxes can be tricky. America’s Favorite Insurance & Tax provides clients in Texas and Florida with professional tax and insurance services. They also offer tax professionals the opportunity to open their own tax or insurance franchise. Complete support and training are provided to help you launch your business. Call (972) 662-8221 for more information, or visit their website to learn more about this business opportunity.