I’m Self-Employed and Know Freelance Taxes Are Tricky. Here Are 7 Tips I Swear By

Have you heard of forosphobia? I hadn’t either, even though I had it (and still do). It refers to the fear of taxes and the IRS — a feeling I’m sure many new and seasoned freelancers alike can relate to.

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Embarking on a self-employment journey is an exciting venture, but the intricacies of filing taxes can be daunting. From compiling 1099s to figuring out how to claim eligible business expenses, the entire filing process can be trying — not to mention expensive.

But it doesn’t have to be. Whether you’re filing with online tax software or working with an accountant, here are seven tax tips that can save you money, time and headaches.

Read more: IRS Delays 1099-K: What PayPal, Venmo and Cash App Users Need to Know for Tax Season

1. Organize your receipts digitally

When you’re on the hook for paying taxes on the income you earn, you want to take advantage of every business tax break you can to offset your bill. Keeping a detailed record of every expense is crucial for maximizing deductions and reducing your taxable income. From office supplies to business-related travel expenses, every dollar spent on your business can potentially be deducted.

One common pitfall for new entrepreneurs is not habitually tracking business expenses. Even though I kept every receipt when I first started out, I didn’t keep them in one place. I threw them in a random drawer or box. That led to a mess when it was time to file my taxes. 

Nowadays, I take a picture of each expense and email myself all of the receipts. Then, I save it in a folder in my inbox so I can throw the paper receipts away. 

You can also use accounting software, like Xero or QuickBooks, or apps, like Expensify, to streamline this process and ensure that no deductible expenses slip through the cracks. But you don’t have to download or pay for fancy software, as long as you find a system that works for you.

2. Don’t overlook small tax-deductible expenses 

Never underestimate how quickly small business expenses can add up to big tax savings. It’s easy to discard small expenses as unimportant. But if you have a few tiny expenses each week or month, you might find there’s a more substantial amount to write off come tax time. And every little bit can lower your tax liability even more.

For example, I would often stop at the dollar store to pick up an item or two on the way to a business event. And since I was only spending a few bucks, I’d sometimes not even bother to include those receipts in my expense filing system. 

After almost a decade of being an entrepreneur, I regret that, because a dollar here and there can easily add up to hundreds of dollars over time.

3. Claim your startup costs

Like many entrepreneurs, I was completely unaware that I could claim business expenses on my tax return for costs incurred before the official launch of my business. For instance, startup costs could include things like surveys of potential new markets or products, ads to promote your business before it opens, pay for employees being trained, or travel to meet with potential partners. 

Researching and understanding the eligibility criteria for these deductions can provide a significant boost to your initial tax returns. If you’re unsure of whether the expense qualifies, save all your receipts anyway and consult with a tax professional. 

4. Think of quarterly taxes as a helpful check-in, not a hassle

Unlike traditional employees, who have taxes withheld from each paycheck, self-employed individuals are responsible for paying taxes on a quarterly basis. I’m embarrassed to say this, but I didn’t know this in my first year managing my own business. Come tax time, I was to learn that failure to pay quarterly can result in penalties and interest — on top of the taxes you owe, of course. Luckily, my liability wasn’t a huge amount, but ever since then, I’ve made sure not to be surprised by the deadlines again. 

As you might’ve guessed, estimated quarterly taxes are due four times a year. For 2024, three payments are due throughout the year — on April 15, June 17 and Sept. 16 — and the last payment is due on Jan. 15, 2025. Create reminders so you can plan to set the money aside, because it’s important for staying in compliance with the tax regulations. I’ve set up a recurring calendar reminder every three months to make sure I pay my quarterly taxes on time. You can also set this money aside in a high-yield savings account to earn interest while it sits.

It can feel like a bummer to part with a portion of your money every quarter, but now I try to look at it as a blessing rather than a curse. I’d rather pay my taxes in smaller amounts over the course of the year than get stuck with a huge bill — and potential penalties — later on. Plus, now I have the guidance of a tax professional, who provides me with a quarterly estimate to make sure I’m paying the right amount. 

Read more: Expert tips for calculating your estimated quarterly taxes

5. Look into tax benefits for retirement savings

The intersection of retirement planning and tax benefits is crucial if you’re self-employed. I meet too many entrepreneurs who work really hard but feel like they have nothing to show for it in long-term savings. 

Contributions to retirement plans, such as IRAs or 401(k)s, not only offer immediate tax benefits but also can help you to retire early from your business if you don’t want to work so hard into old age. 

When I first left my corporate job to pursue entrepreneurship, I had no idea I could create my own 401(k) for my business. It had never occurred to me that was possible, and no one ever mentioned it in the various entrepreneurial communities I joined. Today, I have a 401(k) that I contribute the maximum amount allowable by the IRS, along with a match and a profit share. 

Even if you’re a freelancer, contributing to a Roth IRA can make a huge difference in your net worth. 

6. Make your home office a haven

If you’re operating a business from home — even part of the time — there are plenty of related expenses you may be able to deduct, including, but not limited to: 

  • Homeowners insurance.
  • Utilities.
  • Property taxes.
  • Home repairs and maintenance.
  • Furniture.
  • Computers and accessories.
  • Phones.
  • Shelving and decor.

However, the IRS requires a dedicated and exclusive space within your home to qualify as a home office. Working from your living room coffee table won’t qualify. 

I was very frugal when I first started my business, and I’m glad I was, because that habit helped me grow my business without having to accumulate any debt. In hindsight, sprucing up my office during my first year would’ve gone a long way toward making me more productive and proud of the business I was building. Though you can’t recoup the full cost you spend to update a home office, if it boosts your productivity, and in turn your revenue, it’s a worthwhile expense in my book.

7. Consider investing in professional tax help

I’m strongly in the camp of entrepreneurial spirit and a hands-on approach, I did my own bookkeeping for the first four years of my business to save money. But it’s one of my biggest entrepreneurial regrets. Even though I’m a money coach, it doesn’t mean I’m well-versed in tax code or that I enjoy categorizing hundreds of expenses in accounting software. My time and energy would’ve been better spent prospecting for new clients or working on improving my programs.

I know that many people starting a business don’t have much money to spare, but hiring a qualified accountant or tax professional can save time, mitigate errors and make sure you’re compliant with tax laws. Plus, you could save money in the long run. At the very least, the investment can free up more time to spend with those friends and family members you don’t get to see as often while you’re scaling your business.

Investing in professional expertise lets you focus on what you do best while leaving the complexities of filing to those well-versed in tax code. Plus, you can write off tax preparation costs for your business to lower your tax liability even more.

If it’s your first tax season as a freelancer or business owner, don’t feel overwhelmed. There’s a learning curve, but it gets easier over time.

More tax advice:

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