Freelancer Taxes: A Guide for Filing With a Side Hustle

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Receiving payments from clients
- What it means: If you receive a 1099, don’t dismiss it — whoever sent it to you also sent a copy to the IRS, so it wouldn't be a good idea to leave that information off your tax return. Also, if you did work for a client that hasn’t sent you a 1099, you probably still need to report the money you earned there. Income, even if it’s paid in cash, generally has to be reported unless the law specifically exempts it.
- Federal: $79 to $139. Free version available for Simple Form 1040 returns only.
- State: $0 to $69 per state.
- Expert help or full service filing is available with an upgrade to Live packages for a fee.
Making estimated tax payments
- Major forms involved: 1040-ES, W-4
- What it means: Every quarter or so, you may need to estimate your tax liability and pay the IRS. Waiting until the tax filing deadline to do it all at once could mean paying penalties and interest. If you have a partner with a regular job and you’re filing jointly, you might be able to avoid the quarterly hassle. “What we'll typically recommend is that you get an estimate of what your total tax liability is going to be from all income sources and then just jack up your withholding from work. That way it's automating it for you, and you don't have to go through this really conscious effort every quarter,” says Micah Fraim, a certified public accountant in Roanoke, Virginia.
Filing your tax return at tax time
- Major forms involved: Schedule C
- What it means: At tax time, a lot of your record-gathering and number-crunching will revolve around completing this form. As a result, you may need to spend more on advanced tax software or human tax preparers.
Taking advantage of tax deductions
- Major forms involved: 1040, 8995
- What it means: You could end up with a lower tax bill. If your total 2024 taxable income was at or below $191,950 for single filers or $383,900 for joint filers, you’re more likely to get this tax break
. People over the limit may still get a partial break, but the rules get more complicated.
Understanding the taxes you might need to pay
- Major forms involved: Schedule SE
- What it means: For the 2024 tax year, only the first $168,600 of earnings was subject to the Social Security portion
. A 0.9% additional Medicare tax may also apply if your net earnings from self-employment exceed $200,000 if you’re a single filer or $250,000 if you’re filing jointly . To calculate how much you’ll owe, you may need to add Schedule SE to your tax filing to-dos.
Setting up your own freelancer retirement plan
- Major forms involved: 1040, Schedule C
- What it means: “It lessens the pain of how much you're having to shell out to the government if you're funding your own retirement account,” Fraim says.
Hiring someone versus doing it yourself
- Major forms involved: Quite a few. See our picks for the best tax software, including packages for the self-employed. We also have a list of questions you should ask when searching for a CPA or tax accountant near you.
- What it means: If the tax forms landing in your mailbox are completely foreign to you, take them to a human preparer. Be sure the preparer has a PTIN, is established in the area, has valid qualifications, can handle the workload involved with preparing your return and can represent you in front of the IRS if something goes wrong. And if you want guidance and help with long-term tax planning rather than just data entry and bill calculation, it's probably better to visit a financial advisor with tax advising experience.
Article sources
- 1. Internal Revenue Service. Form 8995: Qualified Business Income Deduction Simplified Computation.
- 2. Social Security Administration. Contribution And Benefit Base. Accessed Jan 12, 2024.
- 3. Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates. Accessed Jan 12, 2024.
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