If you're self-employed you understand the unique pressures of tax season all too well. Unlike traditional employees, you don't have taxes withheld from your pay so it's up to you to stay on top of everything. There is a bright side, though: you can access a wide range of tax deductions with the potential to lower your bill if you know what to look for.
Who is Considered Self-Employed?
You're likely considered self-employed if you're earning income as a freelancer from your own trade or service, even part-time. That includes writers, designers, gig workers, consultants, and small business owners. You don't need to have an LLC or official business name to be responsible for self-employment taxes.
What Are Your Tax Responsibilities?
Self-employed workers must file an income tax return annually and make estimated quarterly payments. These cover both income tax and self-employment tax, which includes Social Security and Medicare. If you think you'll owe more than $1,000 for the year, quarterly payments help you avoid IRS penalties.
A Quick Word About 1099s
Clients who pay you $600 or more should send a 1099-NEC to report non-employee income. You might also get a 1099-K from platforms like PayPal or Venmo. But even if you don't receive a form, you're still required to report all earnings on your tax return.
Can You Deduct a Home Office?
Potentially. You might qualify if a portion of your home is used regularly and exclusively for work. You can deduct home office expenses using one of two methods:
- Simplified Option: $5 per square foot, up to 300 square feet.
- Actual Expense Method: Deduct part of your mortgage interest, rent, utilities, and maintenance based on how much of your home is used for business.
Top Deductions to Keep in Mind
If you keep organized records, you may be able to deduct:
- Office supplies and equipment
- Health insurance premiums
- Business travel, including mileage
- Continuing education and training
- Marketing and advertising
- Legal and accounting fees
- Retirement contributions: SEP IRAs, SIMPLE IRAs, or solo 401(k)s
How to Handle Payments and Payment Plans
You can handle estimated tax payments directly through the IRS website, either with Direct Pay or your IRS account. If the full amount feels out of reach by the deadline, the IRS does offer payment plan options. It's always a wise move to get ahead of it to the best of your abilities. Late fees and penalties add up quickly, and planning early in the year can make a real difference.
A Quick Checklist for Freelancers and Sole Proprietors
- Keep records of all income: cash, checks, 1099s, and app-based payments.
- Set aside part of your income for estimated taxes.
- Log and save receipts for any deductible business expenses.
- Only claim a home office if the space is used exclusively for work.
- Use basic accounting software or a spreadsheet to stay organized.
- Consider a separate bank account for your business finances.
- Look into retirement accounts created for the self-employed.
- Keep tabs on IRS tax deadlines and payment due dates.
- Familiarize yourself with IRS forms like 1040-ES, Schedule C, and Schedule SE.
- When in doubt, ask a CPA for help.
Get Personalized Support for Your Business
Being self-employed definitely gives you more control over when and how you work, but it also means more responsibility. If you're not sure about which deductions apply to you, or you're trying to figure out how to keep up with quarterly payments, a CPA can be an excellent partner.
At Myrick CPA, we understand the unique needs of freelancers, gig workers, and small business owners. We're here to help you avoid costly mistakes and find smart ways to save on taxes. Contact us to schedule a conversation and find out how we can support your success.
