Freelancers normally have complete control over their work lives. Many can work when they want, where they want, and as much or as little as they like. However, in return for this freedom, they’re wholly responsible for covering self-employment taxes, making quarterly payments, and completing tax return preparation. If you’re new to freelancing, use the following guide to help you navigate your finances.

What Are Self-Employment Taxes?

When you work through an employer, they withhold taxes on your expected earnings, including amounts to cover your share of Medicare and Social Security. These taxes amount to 15.3% of your earnings, but your employer covers half of them.

However, as a freelancer, you must pay the entire amount. This is known as self-employment tax, and the amount you owe is completed and filed with your yearly tax return.

What Is the Quarterly Tax Schedule?

Freelancers who expect to owe at least $1,000 in taxes must pay one-quarter of their estimated burden approximately every three months. These tax payments, filed with appropriate forms, are meant to cover the amount you owe for the previous two- to three-month period.

Normally, the deadlines fall on April 15, June 15, September 15, and January 15. In 2020, due to the coronavirus pandemic, the IRS delayed the first due date from April 15 to July 15.

How to Budget for Taxes

Most tax experts recommend that freelancers set aside 25% to 30% of gross earnings to cover taxes. The more you earn, the larger the percentage you should save. These amounts must cover not only state and federal income taxes, but the entire 15.3% of self-employment taxes for which you're responsible.

Consider opening a second account with your bank so you can transfer a percentage every time you receive payment on an invoice. This should not be a savings account or an emergency fund; it should be used solely for paying taxes.

If you’re a freelancer who needs help with tax return preparation, contact Balanced Bookkeeping in Lincoln, NE. They serve clients in Lancaster County and the surrounding areas and offer a wide variety of accounting services. These include bookkeeping, payroll, estates, and tax planning. Learn more about the firm on their website, or call (402) 466-4272 to schedule tax return preparation services.