A How-To Guide on Freelance Taxes: 4 Tips Worth Knowing

how-to guide filing freelance taxes

Tax season is upon us again. And as a last, lingering remnant of this previous year, it's shaping up to be an interesting one, to say the least. 

Particularly if you work as a freelancer. 

Freelancing can offer you a lot of freedom in your day-to-day life, but can bring certain complications are tax time even in the best of years. To help you get out in front of any potential issue before they arise, check out these tips for filling your freelance taxes. 

1. Keep Your 1099's in One Place 

The first major move to help simplify the tax-filing process is getting organized. For regular employees, this is a lot simpler. Their employer issues a single W-2 form that needs to be filled out. 

If you're a freelancer though, it can get more complicated. 

The freelance tax form is the IRS Form 1099-MISC, used to report miscellaneous income. You should receive one of these from every client over the past year. Getting these organized is the first step to ensuring a smooth process. 

2. Know Your Business Structure 

Knowing the legal structure of your business is the next major point. 

Most freelancers tend to file as sole proprietors, for example. However, when their business interests grow to a certain point, it may actually be better to file as an S-corp. This designation is more complex but confers certain tax benefits that sole proprietors wouldn't be eligible for. 

3. Reduce Your Liability As Much as Possible 

Once you've established what structure you want to file under, the real meat and potatoes of the process is looking for ways to minimize the total taxes that you owe. 

Fortunately, as a freelancer, you're likely to have a lot more expenses that you can deduct than a regular employee would. 

As a rule, freelancers can deduct expenses like office expenses, business-related materials and equipment, and food, lodging, and travel expenses pertaining to their work. 

Just don't get too extravagant. The IRS guidelines stipulate that expenses must be "ordinary and necessary", so probably don't try to deduct any luxury indulgences you happened to make while traveling for work. 

4. Don't Forget to Factor in the COVID Relief Bill 

One of the unique circumstances affecting tax on freelance work, or rather taxes in general, is the COVID Relief Bill. 

For starters, if you received a stimulus check at any point, you're probably wondering whether or not that counts as taxable income. Well worry not, you neither have to report or pay taxes on those payouts. 

But what's more interesting is if you didn't receive a check. If you were eligible for a stimulus payment but did not receive one, you may be able to claim it on your taxes, substantially reducing your liability. To see if you qualify, learn more about how the COVID relief bill may impact your tax obligations. 

Filing Your Freelance Taxes Made Easy 

No matter your profession, filing taxes can be a headache every year. That said, for all of their complications, these tax returns don't have to be difficult. 

In fact, once you understand the process, filing your freelance taxes can not only be simple but can be a great way to help recoup some of your expenses over the previous year, depending on how diligent you are documenting your potential deductions. Taxes are inevitable after all, but you can always chip away at that final financial bill

For more tips on how to ease your tax burden, be sure to keep up with the latest from My Frugal Business. Visit the Finance section of the Bootstrap Business Blog to learn more about filing freelance taxes and solopreneur accounting.

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