Freelancing offers flexibility and freedom that is not normally afforded when working for an employer. When you are a freelancer, you can control your workload, choose your clients, and make your own schedule. Whether you do freelance work on the side, or if it's your sole source of income, you should be aware of the rules regarding tax preparation and filing for freelancers.

Apply for Self-Employment Tax

If you were employed by a company, then the employer would pay half of the Social Security and Medicare taxes, and the other portion would be deducted from your paycheck. Because you are self-employed, you are required to pay for all of it. You may be able to deduct half of your self-employment tax on your Form 1040. During your tax preparations, schedule SE can help you figure out how much you owe in self-employment tax. The current rate is 15.3% of your net earnings.

Deduct Business Expenses

Freelancers are allowed to deduct ordinary and necessary business expenses on their taxes, including the cost of supplies and equipment, as well as 50% of business travel and meals. Educational costs related to your profession are also deductible.

Pay Estimated Taxes Quarterly

You can't wait until tax preparation time and then pay all your taxes unless you want to incur penalties from the IRS. If you expect to owe $1,000 or more in taxes in a particular year, you should pay estimated tax payments every quarter of that year. Form 1040-ES is used to figure out and pay estimated taxes.

Understand How to Budget for Taxes

Though it's not exactly simple to calculate how much you are going to owe in taxes at the end of the year, you do need to budget and save for your self-employment tax and estimated quarterly taxes. As a rule of thumb, you should save 25% to 30% of your net income to go toward taxes. Your net income is your income minus your business expenses.

To keep your finances straight, you can set up a separate bank account to deposit the money you will pay toward taxes. You can transfer the appropriate percentage into this account every time you receive a payment from a client. You can also estimate how much you are going to make at the beginning of each month, multiply it by 25% to 30%, and transfer the amount then.

If you need tax preparation assistance, contact Imperial Agency in Garfield, NJ. Their qualified accountants can also help with bookkeeping, payroll, business formations, and accounting needs. For over 38 years, they have been serving residents and businesses throughout Bergen County. Call (973) 546-9567 to schedule an appointment or visit their website for more information about their products and services.