Freelancing and gig economy jobs have become popular ways to earn money, but taxes can be tricky. The IRS classifies this type of work as self-employment, which means certain tax rules apply. Understanding these rules helps avoid surprises when tax season comes.
Self-employment income basics
Freelancers and gig workers must treat their income as self-employment income. This includes jobs like ridesharing, delivery services, and freelance writing. Gig workers must report all income, even without receiving a 1099 form from every client. The IRS expects taxpayers to report all earnings, regardless of the amount.
Paying self-employment taxes
Freelancers must pay self-employment taxes, which include Social Security and Medicare. These taxes amount to 15.3% of net earnings. Freelancers also need to pay federal income tax on their earnings. Many freelancers make quarterly estimated tax payments to avoid a large bill at the end of the year.
Deductions for freelancers
Freelancers can deduct business expenses, such as office supplies, software, travel, or a portion of home expenses if using a home office. Detailed records help ensure all eligible deductions are claimed, reducing taxable income and lowering overall tax bills.
Keeping accurate records
Freelancers must keep accurate records of income and expenses throughout the year. Using accounting software or a simple spreadsheet helps track earnings and expenses. Accurate records simplify tax filing and provide proof in case of an audit.
Filing taxes as a freelancer
Freelancers must file a Schedule C with their tax return to report business income and expenses. Depending on their earnings, they may also need to file a Schedule SE to calculate self-employment tax. Understanding these forms is crucial for complying with tax laws.
Freelancers who understand their tax responsibilities can navigate self-employment with confidence. Staying informed about tax obligations and keeping thorough records makes tax time less stressful and ensures compliance with IRS requirements.