Any growing business is easy to run when you have professional help, from managing cash flow and planning personal finances, to finding insurance.
While becoming your own boss is exciting, the extra work that you have during tax season can crush that excitement. If you are a full-time freelancer or are starting a side gig, the three tips listed below can help you get prepared for tax season.
1. Be Ready for More Forms
Be aware of the fact that your net profits are taxable. Get familiar with Schedule C—the form where sole proprietors report their business income and expenses. Also, keep in mind that you might need Schedule S.E. to calculate your self-employment taxes.
Hiring a professional accountant for freelancers is a great way to alleviate your tax hassles. However, if you are willing to do it yourself, then you need to be organized, confident, and operational in your specific business.
2. Get Organized
With self-employment, while you experience the excitement of managing your own business, you should also understand that your income is never constant, and often fluctuates. So, to avoid surprises during the year, estimate your tax liability. This way, if you are ever audited, you will be forced to prove the income and expenses on your tax return. To avoid such troubles, keep consistent records and save your financial documentation for at least three years.
Tip: If you feel helpless or stuck with your taxes, then employ income tax services for the self-employed from reliable professionals.
3. Understand 1099-NEC Forms
If your client pays you $600 or more during the year, you should probably get a 1099-NEC Form from them in January or February. This form demonstrates how much your client paid you over the tax year, for which you are required to report. Be as transparent as you can, because your client has the power to send a copy to the IRS, and the IRS will know what they paid you… even if you don't report that income on your tax return.
These are a few tips for freelancers in order to avoid further stress during tax season.
