Freelancer Taxes: A Guide for Filing With a Side Hustle

You'll get more tax paperwork, and you'll likely need to file more forms at tax time. Here's how to stay on top of it all.
Tina Orem
Sabrina Parys
By Sabrina Parys and  Tina Orem 
Edited by Chris Hutchison
6 Things That Side Gig Is Probably Going to Do to Your Taxes

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Picking up a side hustle or becoming your own boss full-time can change a lot in your life, including your taxes. If you did any freelance or independent contract work last year, here's a guide to help you understand some of the major to-dos in managing your taxes.

Receiving payments from clients

How it works: Your clients may send you a Form 1099-NEC showing how much they paid you during the year. You’ll need these forms to tally and report your income from your side gig.

Major forms involved: 1099-NEC (How it works.)

What it means: If you receive a 1099, don’t shove it in a drawer — 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.

Making estimated tax payments

How it works: Taxes are a pay-as-you-go arrangement in the United States. When you earn money, even from a side gig, the IRS wants its piece as soon as possible. That’s why employers withhold taxes from employee paychecks. But because you’re not an employee, you may need to make estimated tax payments during the year.

Major forms involved: Form 1040-ES, W-4

What it means: Every quarter or so, you may need to estimate your tax liability and pay the IRS. (How it works.) 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,” Fraim says.

How it works: You'll probably need to file a Schedule C. This is where sole proprietors can report their business income and expenses.

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.

How it works: Generally speaking, expenses involved in operating your business can be tax-deductible. (How it works.) IRS Publication 535 lays out many of the rules. Plus, because of the changes to the tax law, you may qualify for a deduction of up to 20% of your side-gig income.

Major forms involved: Form 1040

What it means: You could end up with a lower tax bill. If your total 2022 taxable income was at or below $170,050 for single filers or $340,100 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. "I'd say 90% of people should be able to expect to get that 20% deduction,” Fraim says. Don’t be shy about seeing a qualified tax pro for guidance.

How it works: You may need to pay self-employment tax.

Major forms involved: Schedule SE

The IRS imposes a 12.4% Social Security tax and a 2.9% Medicare tax on your net earnings. Typically, employees and their employers split that bill. But self-employed people pay the whole thing. (For the 2022 tax year, only the first $147,000 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.

What it means: To calculate how much you’ll owe, you may need to add Schedule SE to your tax filing to-dos. (How it works.).

How it works: Going solo usually means saying goodbye to employer-sponsored retirement plans, but who says you can’t start your own? Solo 401(k)s and Simplified Employee Pension Individual Retirement Accounts (known as SEP IRAs) offer ways to have a side gig and still build a nest egg, and the contributions could be tax-deductible.

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.

How it works: Taxes are complicated, and they can be even more complicated when you have a side gig. There are extra forms to fill out, along with many rules about the right way to report your income and even more rules about how to handle your expenses. Hiring someone to do your taxes could be a good move, but if you're confident with taxes you might save money doing them yourself.

Major forms involved: See our picks for the best tax software, including packages for the self-employed. We also have a list of questions you should ask a prospective tax preparer.

What it means: If the tax forms landing in your mailbox are completely foreign to you, take them to a human preparer. And if you want guidance and help with tax planning rather than just data entry and bill calculation, it's probably better to visit a preparer. But 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.

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