How to Keep Your Taxes Under Control
As the gig economy continues to thrive, more individuals are embracing freelance work as their primary source of income. While freelancing offers plenty of flexibility and independence, it also comes with unique tax responsibilities and challenges. Freelancers are considered self-employed, which means they must navigate their tax obligations differently than traditional employees.
Those who are new to the world of freelancing may especially run into issues while working through figuring out their new tax predicament. Let’s explore 7 effective tax relief strategies that are specifically tailored for freelancers. These strategies will be key in helping freelancers maximize their tax savings and minimize a wide range of potential tax-related hassles.
1. Keep Detailed Records
For freelancers, maintaining accurate and organized records is crucial. It’s vital to keep track of all income earned, any business expenses incurred, and copies of relevant receipts and invoices. Keeping track of the records in real time is also helpful so that you’re not left scrambling during tax season trying to remember all of the different sources of income and expenses.
When expenses such as home office costs, equipment purchases, and professional development expenses are incurred, freelancers can maximize their deductions and hopefully reduce what they owe when it comes time to file their taxes.
2. Separate Personal and Business Finances
To simplify tax preparation and ensure compliance, it’s helpful for freelancers to establish separate bank accounts and credit cards for their business expenses. Mixing personal and business finances can easily lead to confusion and complicate tax reporting.
By maintaining separate accounts, it’s much easier for freelancers to track all of their business-related transactions and easily prove their expenses to the IRS if ever necessary.
3. Take Advantage of Deductions
Freelancers are entitled to numerous tax deductions that can help lower their taxable income. For example, common deductions include home office expenses, mileage for business-related travel, professional association memberships, health insurance premiums, and many more.
By leveraging these deductions, freelancers can reduce the amount that they owe to the IRS and, in turn, be able to keep more of their hard-earned income.
4. Contribute to Retirement Accounts
Freelancers and self-employed individuals have several retirement savings options that offer tax benefits. Contributions to retirement accounts such as Simplified Employee Pension (SEP) IRAs, Solo 401(k) plans, and traditional or Roth IRAs may be tax-deductible and can also help freelancers build long-term financial security while reducing their current tax burden.
It’s helpful to do your research or speak with a professional to know which option is best fit for your needs and future plans.
5. Estimate Quarterly Taxes
Unlike traditional employees who have their taxes withheld from their paychecks, freelancers are responsible for paying estimated quarterly taxes to the IRS. Failing to make these estimated payments can lead to penalties and interest charges.
Freelancers should do their best to accurately estimate their quarterly tax obligations based on their projected income and expenses and make timely payments to the IRS to avoid any unnecessary penalties and financial hardship.
6. Consider Forming a Business Entity
Depending on the circumstances, freelancers may benefit from structuring their business as a separate legal entity, such as a limited liability company (LLC) or S corporation rather than solely as an individual taxpayer.
Doing so can offer liability protection, potential tax advantages, and even additional opportunities for deductions. As always, it’s important to consult with an experienced team of professionals or a legal advisor to determine the most advantageous business structure for your specific situation.
7. Seek Professional Guidance
Always know your options. Dealing with the complexities of self-employment taxes can be extremely overwhelming for freelancers, especially considering the consequences of unpaid taxes. Consulting with a tax professional who specializes in working with self-employed individuals can provide invaluable guidance and support to help walk you through it.
Need Help With Your Taxes?
Freelancers who find themselves in tax debt or anticipate they may struggle to meet their tax obligations should seek immediate assistance from a tax relief professional like the ones at LBS Tax & Accounting Services. We specialize in helping individuals resolve their tax debts, navigate complex tax issues, and develop personalized strategies to achieve financial relief and peace of mind.
Don’t hesitate to reach out to our office today or call 480-664-1249 for a free, no-obligation consultation to review your options. We can help you at any stage of your tax journey, whether you want help making informed decisions or you need to explore tax debt relief options and payment plans. Whatever your tax situation, the experienced team of tax specialists at LBS Tax Services can help you find the perfect solution.