The number of businesses who hire freelancers is growing every year. Generally speaking, it’s a win-win for both parties. Employers reduce the cost of benefits, pay for services only when needed, and can select from a larger pool of workers. Freelancers have flexible work hours, can work from anywhere, and work at any hour. However, there are tax responsibilities that freelancers have to assume, which are usually handled by employers. Here are a few things to keep in mind.
Whether you work for another person or are your own boss, everyone pays state and federal taxes. In addition to those taxes, you also have to pay Social Security and Medicare (your FICA contribution). If you were an employee, your employer would pay half of the FICA tax and you would pay the other half, but when you’re self-employed, you pay the whole amount. For the 2017 filing period, the amount was 15.3 percent of the first $128,400.
As an employee, you file your taxes once a year. As a freelancer, you’ll probably have to file taxes, or estimated taxes, once per quarter. The deadlines are in April, June, September, and January. It’s critical that you save a portion of your income to be able to meet these deadlines. It’s easy to get behind and have your dream job become a nightmare.
This is the part everyone likes: deductions. Any expense that is solely for doing business is eligible. Assuming you’re a writer or freelance designer, deductible items include bank fees, memberships, office supplies, computers, software, and internet services. Of course, fees for services such as tax preparation are also deductible. To take full advantage of deductions, save every receipt, and note what you purchased. It makes year-end taxes much easier.
New Tax Laws
The new tax laws passed in December will allow most people who work for themselves to reduce the amount of income they have to claim by approximately 20 percent. That means if you make $50,o00, you can take 20 percent or $10,000 off the amount of taxable income you claim. You’re eligible for that tax break even if you take the standard deduction.
The professionals at ORT Consulting can assist you in figuring out how much tax to pay, when to pay it, and can provide advice all year long to keep you focused on what’s important: your business. Contact ORT Consulting online at ORT Consulting or call our experts today at 773-637-8802.