Operating as a freelance worker comes with the exciting perk of being your own boss. However, it also comes with the not-so-fun task of handling your income taxes. Preparing taxes can be challenging for freelancers because of all the deductions you can claim and the extra planning required.
Follow these 5 secret tips to make tax time less stressful for freelance workers:
Track Expenses Throughout the Year
As a freelancer, you can deduct business expenses like equipment, home office costs, travel, marketing, and more. But, you need the documentation to back up these deductions. Get in the habit of saving receipts and keeping detailed records of all your business expenses. This makes tax preparation much smoother.
Contribute to Retirement Accounts
Open a Solo 401(k) or SEP-IRA to reduce your freelance taxable income. The contribution limit for Solo 401(k)s in 2023 is $22,500. With a SEP-IRA, you can contribute up to 25% of your net earnings. Either savings account helps cut down your taxable income.
Explore Business Tax Credits
Take advantage of federal and state tax credits for small business owners. For example, if you hire freelancers or employees, you may qualify for the Work Opportunity Tax Credit. There are also credits for home office use, energy-efficient equipment, and for other expenditures.
Make Quarterly Estimated Tax Payments
Instead of owing a big lump sum each April, pay your taxes gradually over the year. Breaking payments into 4 installments helps you stay on top of your debt. The penalty for underpayment can otherwise be hefty!
Get Professional Support
Taxes get complicated quickly for freelancers. Consider hiring a tax preparation service like Agro Accounting CPA to handle your tax return. Their CPAs and EAs are experts at maximizing deductions for freelancers. Filing correctly saves you money!
Wrapping Up
Tax preparation for freelance workers doesn’t have to be terrifying or time-consuming. These tips will help you develop good financial habits that simplify your tax preparation. Contact the tax professionals at Agro Accounting CPA to discuss how they can help with your freelance income taxes. Agro Accounting CPA’s team makes filing easier for you!
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