How Much Income Tax Do Freelancers Have to Pay?

In 2019, 57 million people in the US indulged in freelancing work, and most of them reported earning handsome amounts. Everything is good as a freelancer: no boss, no timing restrictions, no extra expenses, no office, etc. The only thing that can trouble freelancers is income taxes for freelance workers, which sometimes seem unfair. If your net income during the year, as a freelancer, is more than just $400, you are liable to pay tax. So, it can be tough being a freelancer in the US! 

Recently, President Trump issued an executive order guiding the US Department of the Treasury to defer payroll taxes from September 1, 2020, to December 31, 2020. The executive order announced a deferral on the 6.2% employee’s share of Social Security tax, but it does not clearly say anything about self-employed or freelance workers. 

Today, in this blog post, we will discuss how much income tax a freelancer has to pay, typical deduction categories for freelancers and, first of all, discuss, how US tax law sees a freelancer. 

Employed vs. Self-Employed 

There is no such term as “freelancer” existing in the eyes of the law. Workers are primarily divided into two categories: Employed and Self-Employed. 

Employed workers are regularly salaried people employed by an employer. The employer manages taxes for its employees. 

Self-employed workers are those people that are self-employed and work directly for clients. They are their own boss and manage their own taxes, usually by themselves or with the help of a specialized accountant for freelance workers. Freelancers and business owners fall into this category. 

Now, let's find out how much income tax freelancers have to pay. 

Taxes Paid by a Freelancer 

A freelancer has to pay two types of tax: regular income tax and self-employment tax. All workers pay (“regular”) income tax, but freelancers are also liable to pay self-employment tax. Freelancers have to pay 15.3% of self-employment tax, which includes Social Security tax and Medicare tax. To follow, a regularly salaried person who works for an employer is also liable to pay a payroll tax, which is usually shared by both employer and employee. An employee pays a 6.2% Social Security tax and 1.45% Medicare tax, and an equal share is paid by his or her employer. However, as a freelancer is considered both an employee and an employer, a freelancer has to pay both parts. 

Deduction Categories for Freelancers 

Tax laws may seem a little unfair toward freelancers, yet there are many deductions available for them as well, which a regular employee cannot avail. Here are four primary tax deduction categories for freelancers:

Home Office 

If you are working as a freelancer, most probably, you have a home office. The IRS allows you to write off the expenses related to your home office, such as rent and cost of utilities. Nonetheless, it is your responsibility to ensure you are not using home office space or utilities for personal use. Writing off personal expenses may incur penalties. For this reason, it is advisable to hire an accountant for freelance workers while filing your income taxes, to become familiar with specific IRS rules and to avoid making important mistakes. 

Equipment 

If you are purchasing equipment for work purposes, then it is eligible for tax deductions. Such tax benefits are not available to regular employees. 

Education 

The IRS also allows you to write off the education costs incurred in upskilling to meet your business’ requirements. Your continuing education and certification costs are tax-deductible! 

Travel and Meal Expenses 

Lastly for this blog, you can also include business-related food and travel expenses at a rate of 50% in your tax deductions. However, it is strictly advised to separate your personal and business expenses in order to avoid any potential conflict with the IRS. As it is actually quite easy to make mistakes while filing your taxes when freelancing, experts advocate hiring an accountant consultant for freelancers to avoid any surprises.

Advantages to Be Reaped by Creative Entrepreneurs from a CPA Audit

Along with having to determine strategies to enhance your business growth, tax preparation for entrepreneurs is an additional responsibility that, sometimes, can be too overwhelming to handle. However, rather than spending a copious amount of capital to manage your accounting, undergoing an external audit might be a better idea. It will help you review your accounting process and come up with different options to escalate the financial growth of your organization. The following is a list of advantages that can be reaped by creative entrepreneurs from an external audit. Plunge into the details. 

● Validate Financial Data 

If you opt for an external audit, you will receive a CPA’s objective opinion on the financial processes and data of your organization. Let’s face it: it is difficult to have in-depth understanding of accounting peculiarities without relevant educational qualifications. Thus, an external audit can provide you with insight that otherwise might have been practically impossible for you to obtain on your own, and this insight will enable you to get a hold of the accountability and validity of financial information in your business. This could also pave the way for financing opportunities from investors and lenders in the future. 

● Find Errors 

An external audit can pinpoint all significant errors in your existing accounting system, which may be restricting cash flow and possible monetary gains for you. Once you successfully find these errors, make the necessary changes to carry out your production output in the best possible manner. 

If you need an accountant consultant for freelancers and small businesses to look into the financial aspect of your business and to help you manage your accounting more efficiently, then it is strongly recommended you reach out to a qualified professional like the certified public accountants at Agro Accounting CPA. They offer an online CPA platform that will present you with exceptionally well-designed and affordable accounting services. Visit the official website of Agro Accounting CPA in order to learn more.

Tips to Help Business Continuity During a Pandemic

COVID—19 has successfully turned our lives upside down. No walk of life remains untouched by it, yet small businesses and freelance workers have been severely thrashed by the pandemic. Nonetheless, the government has made tremendous efforts to make it easier for small businesses and freelance workers to make it through the pandemic. It is up to entrepreneurs to make the best use of available assistance and resources at their disposal. The following is a list of tips by accountant consultants for freelance workers to help small scale businesses to continue as a going concern, as the pandemic pushes on. Read on, plunge into the details.

                                

Do a Business Impact Analysis

Before you can fix a problem, it is important to understand the intensity of the impact that, in this case, the COVID-19 has made on your business. Once you get the facts, you will be able to see the big picture more clearly and, after, you can start to deal with the concerns on hand.

Do Business Modeling

Business modeling is a great way to determine your plan of action in order to get yourself out of this mess. Create models of the various possible outcomes your business could consider.

                                   

Risk Analysis and Mapping

Once you are through with modeling your possible courses of action, move on to risk analysis in order to determine if your selected plan is good for your business or not.

The current times are extremely tough for freelance workers and small businesses, yet don’t have the misconception that this is “as bad as it gets.” If you do not get a hold of your business now, then things might catastrophically get out of hand sooner than later. That said, please make use of the abovementioned tips from accountant consultants for freelance workers in order to establish firm, steady ground for your business’ comeback.

Tax Benefits & Write-Offs for Freelance Workers that You never Knew About

Freelancing can be a tedious job because you need to take care of everything on your own, whether it is business planning, finances, serving clients, etc. Nonetheless, the government has bestowed upon freelance workers numerous tax benefits and deductions. Filing income taxes for freelance workers could never get any easier than what it is today! Yet, it is people’s negligence, truly, that keeps them from getting these benefits. If you are a freelance worker, it is essential that you be well-informed about everything concerning your income taxes. The following is a list of pointers explaining tax benefits and deductions for freelance workers that you might have never known about. Read on, plunge into the details.

● The Home Office Deduction

Most freelance workers work from home, which enables them to deduct part of their rent or mortgage payment, within the parameters of the home office deduction. In order to get yourself qualified for this deduction, it is essential you designate a particular space of your home as a ‘home office.’ The IRS requires that it be used exclusively and consistently for business purposes.

● Office Supply Deductions

The cost of office supplies is deductible, whether it is as minimal as paper, pens, staplers or printer cartridges.

● Travel Expenses 

Your travel expenses can also be deemed deductible if you travel solely for business purposes. Many people do not know this, but you can write off travel expenses to the extent a mixed-purpose trip has a clear and identifiable business element to it.

                 

If you are a freelance worker and if managing your accounting seems overwhelming to you, then it is highly recommended you reach out to an online CPA platform in order to file your taxes and save money with tax benefits and deductions. Agro Accounting CPA has an online platform that strives to present its clients with a dedicated team of professional tax preparers to assist with tax preparation for entrepreneurs. Visit the official website agroaccounting.com to find out more.

Tips to Save Money with Tax Preparation for Freelancers

Income taxes for freelance workers have always been a tough nut to crack. It is safe to say that the thrill of building an empire for yourself is cut short when you have logbooks and invoices to go through. However, that is as important for your business as are planning strategies. The better you understand taxes, the better the chances of you saving more money on your own taxes. The following is a list of a few tips to save money with tax preparation for freelancers. Read on, plunge into the details.

Deductible Expenses

Most people do not know that many expenses can be deemed deductible from taxable income. They will help reduce your tax liability. These deductible expenses usually include advertising, travel and office supplies. If you work from home, then you can also opt for a home office deduction. However, there are certain criteria in terms of space and work that your home needs to meet in order to be eligible for this deduction.

Categorize Your Expenses

One essential aspect of managing money in your business is knowing when and where to spend your money, and keeping track of your expenses. You can hire an accountant consultant for freelance workers to do the job for you. If you plan on doing it on your own, then make sure that you categorize all of your expenses in an organized manner. This will prove to be very beneficial when you file your income taxes.

Opt for the Right Business Insurance Plan

Many freelance workers tend to delay the process of finding an appropriate insurance plan to support their business in crisis. It is important that you make sure to not commit this mistake and save yourself from some possible hefty losses.

Tips to Make Accounting for Freelancers a Smooth Process

As the concept of freelancing builds intrigue in the minds of people, people have started to consider it as a lucrative way to earn income. Though the idea initially seems exciting, it sure comes with a lot of challenges. The job of a freelancer isn’t easy. Handling everything on your own can be strenuous at times. And, with plenty already on your plate, managing your accounting can seem like a burden. We bring you a list of tips that can help you make tax preparation for entrepreneurs easy and hassle-free. Check these tips out.

• Don’t fall behind on financial recordkeeping

This is one of the most important things to consider during your initial time in the freelance niche. Do everything you can to not lose track of your financial records. If you are a new freelancer, then you need to be well-aware of the fact that... you are on your own now. And, you cannot afford to fall behind on your financial recordkeeping. You must at least periodically keep your records updated. 

• Don’t throw away your receipts

This is one of the most memorable pieces of advice professional income tax services for self-employed can give you. Every time you buy, say, a piece of equipment for your office, make sure to not throw out the receipt. It will act as proof, in the future, that you spent your business’ assets (funds) on the business itself. The tax authorities usually frown upon spending business funds on non-business items. So if you keep your receipts, then you’ll be able to prove what you bought with your business money. 

• Work with financial professionals

As a finance novice, you should always consult with professionals. No matter how proficient you are in your field, there is always room for improvement in things accounting and finance. Working with professional accounting services can help you gain knowledge on it to a great extent.

Managing income taxes for freelance workers can become a whole lot easier with these “tricks.” Try them out and let us know how they work out for you!

Pave your Way to Business Success with an Accountant

Financial planning is one of the most critical skill-sets to possess as an entrepreneur. It’s important to know where your money is going and to find out ways to save it for rainy days.

Emphasis is always on business growth. It is also good to hire an accountant that can come up with ways to save your company money on income taxes for self-employed. Let us see how hiring an accountant will help your business flourish in the years to come:

• Get all relevant Deductions. All people in business want to save money on taxes. An accountant will identify potential applicable deductions for you and will offer advice on those deductions. Also, it is difficult for a person in business to stay up-to-date with tax laws when they are continually changing. All of these things are taken care of by a good accountant.

• Save Time, Energy and your Sanity. Entrepreneurs sometimes think that due to a tight budget, they are unable to afford an accountant. However, they actually would save a lot of money by not getting into the accounting themselves. Instead, spend all of your time and energy on your business!

• Plan for the Future. An accountant can offer you advice for future tax and financial planning. Together, you can pull your reports from past months and examine any seasonal changes in your business.

Accounting isn’t just about taking care of receipts and invoices that have piled up at the end of the year. Hiring someone who has hands-on experience in handling company income taxes of self-employed individuals can result in business success in the long run.