As a freelancer, you get to enjoy the freedom of setting your own hours, establishing rates that reflect your effort and talent, and generally calling the shots. But if there's one drawback to being self-employed, it's the hassle of dealing with taxes. With that in mind, here are some tips that will help you avoid a world of hassle during the upcoming tax season -- and perhaps save you some money in the process.
1. Gear up for your last estimated tax payment
When you're self-employed, you don't have taxes withheld from your earnings. As such, you're required to pay that tax as you go via estimated quarterly payments. Though your final payment for 2019 isn't due until Jan. 15, now's the time to figure out what you'll owe the IRS -- and whether there's a way to reduce that number.
Keep in mind that the more you contribute to a tax-advantaged retirement savings plan, the more of your income you can shield from taxes. If you're self-employed and want to cut your 2019 tax bill, you can look at funding a traditional IRA. But if you're a higher earner, you might benefit from a Solo 401(k), SIMPLE IRA, or SEP-IRA instead.
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2. Defer some income
If you're worried about owing a lot of money to the IRS on your 2019 tax return, then you'd be wise to not get paid any more money for the rest of the year. Hold off on billing clients for another couple of weeks so they're not tempted to pay you before the year closes out. And if you have clients you've already billed, you may want to pick up the phone and make it clear that you're happy to be paid in 2020.
3. Rack up some extra deductible expenses
The more legitimate business expenses you're able to write off, the less tax you'll have to pay on your income. Though 2019 is almost over, if you have supplies or equipment you need to buy for your business, making those purchases in the next week or so, as opposed to early 2020, could work wonders for this year's tax bill, so stock up on office supplies and any other materials you use in the course of your business.
4. Find tax help if you need it
If you're relatively new to freelancing, you may find that filing your taxes is a more confusing process than you'd like it to be. That's why it pays to start looking for a tax professional now -- and if you wind up paying for a consultation, squeezing it in before year-end will give you one more expense to deduct on your next tax return. A tax professional may also be able to advise you on whether it pays to start an actual business, like an S-corp or LLC, so aim to find someone who works with self-employed individuals and small operations.
There's plenty to be gained by being a freelancer, but from a tax perspective, you could also end up gaining a few headaches. Make these key moves, and with any luck, you'll get to save some money by capitalizing on the many tax breaks you're entitled to.
