There are so many release benefits. You can work from anywhere, make your own hours, and make a living do what you like. But there is a problem that blocks so many people from freelancing full time: You have to do your own tax.
So many people are used to submit W2, which means taxes are taken from their checks throughout the year, and they return their taxes in April.
But freelance employees who submitted 1099 must pay quarterly taxes throughout the year – and hope they do not owe anything in April.
But taxes don’t have to be scary. This is your guide to tax for freelancers.
Why is freelancers responsible for their tax?
Many first freelancers usually ask why they are responsible for their own taxes and why they have never been responsible for previous taxes.
The answer is simple: As a freelancer or contractor, you are not a company employee. Therefore, the employer has no responsibility for holding your taxes.
But this fact might seem confusing. They pay you and you work for them – how are you not an employee?
Well, this is our tax classification system. When you first join their staff, you sign a contract stating that you are an independent contractor, not a permanent employee.
Why did you pay a quarterly tax?
Now you understand why you have to pay taxes. But this is another facts that confuse new freelancers – why should you pay a quarterly tax?
Confusion makes sense. You do not pay quarterly taxes as permanent employees. But your tax is held with every check and your employer pays this tax for you.
As a freelancer, you have no benefit. So you have to hold this tax itself.
IRS has a tax system “pay when you go”. You pay taxes throughout the year, and submit at the beginning of the tax season (or April) to ensure your tax for the previous year is correct.
The easiest way to set the “pay when you go” method is paying four times a year: in April, June and January.
But how much do you pay for? This is where it complicates. First, you need to specify your tax rate. IRS separates this with income. And there are additional fees included in your quarter quarter, such as state and local taxes.
You can use the online tax calculator to determine how much you pay quarterly. Try it and as accurately you can.
How to submit
There are many ways freelancers can file. The easiest way to pay for your quarter is through the IRS website. You can even register for direct payments, where the IRS issues your tax from your bank account each quarter.
If your tax becomes a complex, you can rent a CPA, or a certified public accountant. You will spend money on their services, but the tax process is easier and you can even pay less to the IRS than before.
For April tax time, you can always file a tax return online.
Now you understand the tax for freelancers
Tax for freelancers can be very difficult. But once you understand the basics, pay your tax is not so hard.
Always remember to pay your quarter and estimate your payment through your tax bracket. You can file your tax in April online or with CPA.