Unlike traditional employees, freelancers and side business owners must pay self-employment tax, which covers Social Security and Medicare. The rate is 15.3% of net earnings, though you can deduct half of it as a business expense.
Because taxes aren’t withheld from freelance income, the IRS requires self-employed individuals to make quarterly estimated tax payments. Missing these payments can lead to penalties and interest charges.
One of the biggest advantages of freelancing is the ability to deduct business-related expenses, which lower your taxable income. Common deductions include:
• Home office expenses (if you have a dedicated workspace used exclusively for business).
• Internet and phone bills (proportionate to business use).
• Equipment and software (such as computers, cameras, or editing tools).
• Advertising and marketing costs.
• Professional services (such as tax preparation or consulting fees).
If you’re self-employed and pay for your own health insurance, you may be able to deduct the premiums for yourself, your spouse, and dependents.
Freelancers can still save for retirement while benefiting from tax advantages:
• SEP IRA: Contributions are tax-deductible and grow tax-deferred.
• Solo 401(k): Allows both employee and employer contributions, increasing potential tax savings.
Good bookkeeping is essential. Use accounting software or a dedicated spreadsheet to track income and expenses. Keeping receipts and separating business from personal finances can prevent tax issues down the line.
Final Thoughts: Freelancing offers independence, but it also requires proactive tax management. Staying on top of self-employment taxes, estimated payments, and deductions will help keep more of your hard-earned income. If you need guidance navigating freelance taxes, our team is here to help!
