When you work in the gig economy or as a freelancer, one recommended task to do is compile a list of all of your income sources. This information is essential for figuring out your federal income taxes and tax bracket. As a freelancer, one has a variety of options to make money. Freelancing brings independence and freedom. It’s thrilling to have the freedom to select your clients, set your own hours, be your own boss, and decide which jobs to accept or refuse.
In the US, 35% of the working class, or 57 million people, are self-employed individuals, whether in a temporary contract, a side gig or a complete career path.
Freelancers can take advantage of tax savings. The IRS allows independent contractors to take tax deductions. Awareness of the following deductions is important no matter your gig or profession.
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Tax Deductions for retail or office space
Freelancers who work from home can deduct a portion of their rent or mortgage payment thanks to the home office deduction. To be eligible to claim this deduction, a you must have a room designated as your home office or a set home office space. The home office deduction is only allowed for the section of the home that is used as an office and does not apply to expenses shared between a home office and the rest of the house, such as regular maintenance and utilities.
The deduction can be figured out by measuring out the estimated square footage of the space used as an office and using division to the total square footage of the house or apartment.
The IRS provides freelancers with a number of tax advantages and tax deductions for their legitimate business expenses. a deduction for the cost of equipment and supplies, expenses associated with a home office, business travel, and the use of a car for work-related purposes.
Independent contractors may benefit significantly from the tax deductions mentioned above.
Technology and equipment deductions: Items like computers could be eligible for tax deductions if purchased for freelancing employment. An expensive item’s full cost may be written off all at once by a business owner or it may be depreciated over a period of years. Many people think that taking the deduction together is the best option. If you work as a Doordash or Instacart delivery driver on a freelance basis, you may be able to write off expenses including fuel costs, depreciation, vehicle maintenance, and company miles.
However, owners of businesses expecting their income to increase and tax burden in the future may find it advantageous to defer the deduction for a longer period of time.
Marketing and advertising
The costs of advertising for your business may be deductible from taxes. Print, television, radio, and printed advertisements, promotional items, advertising materials and events are a few examples of marketing and advertising efforts that can be written off.
Contribution to a retirement plan
This is one of the tax benefits for independent contractors that might assist you in keeping a sizable amount of your earnings. Independent contractors are unlikely to join a retirement plan provided by their company unless they decide to do so on their own. A SEP-IRA can help self-employed individuals save money for retirement while also possibly lowering their tax obligations.
As a freelancer, you could qualify to set up a SEP IRA, a retirement programme for independent contractors and owners of small businesses. Annually, the maximum contribution to this retirement plan is $53,000, depending on income.
Internet and phone bills
If a freelancer uses their phone for both work and personal purposes, they may be able to deduct some of their phone costs as business expenses.
You can also write off the cost of using the internet for business-related reasons as a utility or office expense. However, if the internet service is being used for personal purposes, freelancers can only deduct a portion of the total cost.
Considerations
Small-time independent contractors might not have to make quarterly payments or pay self-employment taxes throughout the year. A worker is therefore excused from paying self-employment tax if they only execute one minor freelancing project throughout the course of the year and make less than $400. The IRS states that if your total self-employment earnings are $400 or more, you will be expected to make self-employment tax payments.
This calculator can help determine your quarterly taxes:
You can save money and prepare your taxes more effectively by taking advantage of the six crucial freelancing tax deductions that are mentioned above.
When it comes to taxes, freelancers and independent contractors are treated as business owners that are self-employed. Because traditional tax brackets apply to both freelance income and salary income, the amount you pay depends on your income.
As a freelancer, you have two important tax responsibilities to be aware of. Any income you make is first. This is required if you work for a company or for yourself.
Do independent contractors and freelancers pay taxes and seek tax deductions on the same day?
Yes, it is the solution. As some self-employed, you must file your taxes using various IRS tax forms when other taxpayers do in April. The IRS advises creating quarterly estimates of your anticipated tax obligations because independent contractors do not have an employer who withholds taxes from their pay. If you expect to owe $1,000 or more on your taxes, you must file a tax return with the IRS.
Outside of a regular job, providing services to clients might bring in extra money to supplement salaries or pave the way for full-time self-employment, but there are potentially important tax repercussions.
Self-employment taxes may be applied to your income as a freelancer, and you might need to make estimated tax payments. However, always seek the advice of experts if you can’t find the right help or sound advice. Tax-related organizations may be able to offer you better advice.
When it comes to tax breaks for independent contractors, an accountant or CPA who is familiar with freelancing taxes may be your greatest friend. When your tax return becomes more complicated, you might want assistance.
