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5 Freelancer Tax Mistakes to Avoid at All Costs

The freelancing world offers a lot of freedom. But within it, taxes get complicated because there are more rules to follow. Freelancers have to pay both self-employment and income taxes, and the IRS doesn’t really make it easy.

Knowing how much you owe is only one part of paying taxes as a self-employed individual. You also have to use the right figures to calculate your taxes. A self-employment tax calculator is a good tool that can help you with this.

Making errors on your taxes can cost you. Whether it's reporting the wrong numbers, calculation errors or late filing, every mistake is fined by the IRS. So, we’ve made a list of five important questions that every freelancer should ask themselves to avoid future tax mistakes.

Infographic entitled 5 Questions Freelancers Should Ask Themselves At Tax Time for anyone paying self-employment taxes.

Does the IRS know you’re self-employed?

It’s not enough that you start working for yourself and earning 1099 income. You also need to have a clear job contract with each client that states that you’re a freelancer. Without this, the IRS won’t know that you’re self-employed.

Not having a proper job contract can also affect your payment schedule and rights as a 1099 worker. While your clients only have to send you a 1099 form if they pay you over $600, the IRS still needs proof of self-employment.

Have you reported all your income?

As mentioned, you’ll only get a 1099 form for payments over $600. But when you file your taxes, you need to report your income regardless of whether or not you received one. This includes cash payments and online transactions.

If you don't report all your income, you won’t be able to correctly calculate your tax liability. This can lead to tax penalties and might even trigger an audit. Don't forget that the IRS will still get your income information from banks and payment services that you use. So the smart move is to report every bit of income you make, no matter how small or what form the payment is in.

Have you made your estimated tax payments?

Forgetting to make estimated tax payments is one of the most common mistakes freelancers make when they first get started, simply because they might not even need to do it. Self-employed individuals have to estimate their tax liability for the year and pay it quarterly if it’s over $1,000.

An estimated tax calculator is the easiest way to find your tax estimate. If your income fluctuates, you can pay estimated taxes using the annualized income installment method.

Have you taken all your itemized deductions?

As a freelancer, you’ll naturally have costs essential to running your business. On the bright side, you can write them off as self-employed deductions. Itemizing your business expenses is the biggest way freelancers can lower their SE tax.

A 1099 tax calculator can help you find expenses you can write off. Most freelancers might be scared to take too many deductions in fear of the IRS. But if you have the proper evidence (receipts, bank statements, photos) to justify your deduction, you should absolutely make the most of it.

And those aren’t all the itemized deductions you can take. If you have a lot of medical costs or made big charity donations, you can itemize your personal expenses instead of taking the standard deduction. However, these deductions only lower your income taxes, and you’ll still need to show proof to claim them.

Was your tax return accepted?

Don’t forget about your return as soon as you file it. Make sure to check that the IRS actually accepted your tax return. You don’t want to do all that work only to discover an issue with your submission.

If you e-filed your returns, you can usually check the filing website or software to get a status update. You can also call them directly and ask for an update if you mailed them your tax returns.

Using an app like FlyFin can eliminate tax mistakes from your life as expert CPAs help you prepare and file your returns. FlyFin also tracks your income and accurately calculates your SE tax and estimated taxes, while A.I. easily finds all your business deductions.

FlyFin CPA Team

FlyFin CPA Team

With a combined 150 years of experience, FlyFin's CPA tax team includes tax CPAs, IRS Enrolled Agents and other tax professionals, offering users the most comprehensive tax advice and preparation.

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