1 Set Aside Money for Taxes
If a single organization pays you $600 or more, employers will send you a 1099 at tax time, and you will need to report that income to the IRS. Because freelance work is considered non-employee compensation, you are responsible for paying social security, federal and state tax on that income. This can be up to 30% of what you make, so make sure to set aside enough in savings to cover this cost when tax time comes. Depending on how much you make, you may also need to pay quarterly estimated taxes on this income so you don’t risk paying late payment fees.
2 File for a Sole Proprietorship
If you anticipate freelancing for several organizations or wanting to grow your freelance business, consider coming up with a name and filing for a sole proprietorship. This sets your business and freelance work apart from the rest of your life and gives you the opportunity to apply for an Employer Identification Number. You can provide this number to contract employers when you send them your W9 so you don’t have to share your social security number with so many different organizations. This also gives you a snazzy new name to use to set up social accounts and a website to use to market yourself and your skills and hopefully get more work.
3 Set Up a Business Bank Account
Consider setting up separate bank accounts for your business income, expenses and tax savings. This makes it easy to keep track of your income and expenses separately from your personal finances.
4 Track Your Write-offs
You probably know that you can write off qualifying business expenses on your taxes. Keep in mind that only things that are used solely for business purposes qualify for write-offs. That means that even if you use a home office to do freelance work, it’s won’t qualify as a write-off unless it’s used solely for your freelance business work. Easy write-offs to keep track of are mileage, website expenses and office supplies. ::
