Understanding Freelancer Tax Requirements With Cameron Brown

Freelancing has become an increasingly popular choice for many people, but it also comes with its own set of challenges, one of which is taxes. In our ninth episode of Unemployable, we explore what it means to file your taxes as a freelancer, what you need to know, and the options available.

Taxes for freelancers can be more complicated because, as a freelancer, you are responsible for managing and reporting your income, deductions, and taxes. With various expenses, tax laws, and forms to navigate, it’s important to understand the ins and outs of freelancing taxes.

In this special episode of Unemployable, we’ll dive into why taxes are more complicated for freelancers with CPA Cameron Brown and provide tips and resources to help simplify the process.

What Taxes Are Freelancers and Gig Workers Required to File?

Self-employed people, including gig workers on Upwork, Etsy, and other freelance platforms, must file a 1040 tax return with Schedule C. Schedule C is used to report the profit or loss from the business and includes information on business income, expenses, and deductions.

The 1040 tax return is the standard form used by individuals to report their annual income to the Internal Revenue Service (IRS). By completing a Schedule C and including it with their 1040, freelance workers can report their business income, expenses and deductions, and calculate their self-employment tax liability.

Freelancers may have to file Self-Employment or SE tax. Self-Employment tax is a tax levied on self-employed individuals to fund Social Security and Medicare programs. The tax is calculated based on the net income of the business reported on Schedule C and is in addition to any federal income tax owed. This option is available for freelancers in states like California.

What Are the Quarterly Tax Payments That Some Freelancers Make? What Is the Purpose of Quarterly Tax Payment, and Is It Required?

Quarterly tax payments are payments made by self-employed individuals or those with a significant income not subject to withholding to pay their estimated federal income taxes every quarter.

These payments are made to the Internal Revenue Service (IRS) and are due four times a year, on April 15, June 15, September 15, and January 15 of the following year. The quarterly payment amount is based on the estimated taxable income for the year.

Making quarterly tax payments is a common practice for freelance workers to ensure they meet their tax obligations and avoid any penalties or interest charges.

What Is the Difference Between Tax Deductions and Tax Credits?

A tax deduction is an expense that can be subtracted from an individual’s taxable income, reducing the amount of income subject to tax. On the other hand, a tax credit is a dollar-for-dollar reduction of the tax owed. For every dollar of the tax credit, the taxpayer’s liability is reduced by that same amount.

Tax deductions typically lower the amount of taxable income, which in turn reduces the amount of tax owed, while tax credits directly lower the tax owed. Tax deductions and tax credits aim to reduce an individual’s tax liability, but they work differently.

Tax Credits — Are There Any Tax Credits Available to Freelancers?

Freelancers can reduce their tax liabilities by taking advantage of education tax credits such as the Lifetime Learning Credit or the American Opportunity Credit.

These credits can provide a tax break for tuition and fees related to post-secondary education and help offset the costs of continuing education and training. However, it’s important to consult a tax professional to determine eligibility and maximize the benefit of these credits.

Which Tools Can a Freelancer Use to Make Their Accounting and Tax Administration Easier?

Some top recommendations for freelancers to manage their taxes better include:

Opolis – A member-owned digital employment cooperative empowering solopreneurs to live their life of choice with support for healthcare benefits, taxes, and payroll.  

MileIQ – MileIQ is a mileage-tracking app for small business owners, freelancers, and self-employed individuals. The app uses GPS to automatically track and log miles driven for business purposes, providing users with a convenient and accurate way to keep track of their mileage expenses. 

What Are the Biggest Mistakes Freelancers Make Regarding Taxes?

Most freelancers tend to fall behind estimated payments. This refers to the failure to pay a portion or the full amount by the due date. It can occur when an individual or business overestimates their income and underestimates their expenses, and as a result, they can’t pay their estimated tax liability on time.

Another major problem is poorly organized Excel spreadsheets and disjointed conversations regarding expenses. Good data, such as properly organized Excel spreadsheets or utilizing a third-party service, makes the process of filing expenses and calculating estimated tax bills easier.

Golden Tax Tip to Live by

Self-employed people should consider retirement savings and the option of a 401k plan for W-2 employees. As a freelancer, consider making contributions to such a plan to create a nest egg for the future.

Listen to the full episode at Opolis.co/podcast and join the conversation on managing your finances as a self-sovereign worker.