US Freelance Accounting and Legal Information

The following is a list of resources on freelance accounting and legal information for business owners.

The legalities of doing business can be very confusing to the uninitiated. When you’re running a business for the first time, just the requirements and paperwork to get set up can be overwhelming. Because it all seems so unfamiliar and complex, it can sometimes be enough to make you give up doing business before you even begin.

Maybe you’ve experienced a few surprises and gotten into trouble along the way. You are not alone. Maybe you’ve heard about other peoples’ mishaps and are shying away from getting everything set up. This list of articles from other people who have been there can help you learn some tips for navigating freelance accounting and legal requirements in the US.

Freelance Accounting for Taxes

As an independent contractor, paying taxes is not the same. You may be used to filing your taxes as an employee, but this will not prepare you to do the additional accounting you need. There is also more than one tax that you pay when you’re self-employed.

The red tape that sometimes wraps you up and the long lines that can eat up your time is a real temptation to just skip paying taxes altogether. After reading these articles, you’ll know a bit more about how it works. Then, you won’t feel like you have to conquer Everest – or at least you’ll know how to navigate it better and reach the top victorious.

An Independent Contractor’s Guide to Taxes

by Rebecca Lake

Image source: https://dr5dymrsxhdzh.cloudfront.net/blog/images/ac864e972/2019/06/getting-her-home-business-up-and-running-picture-id875247398.jpg

•         Freelancers are considered independent contractors, i.e., business owners / sole proprietors, regardless of how your business is structured.
•         How to classify hires – employees or independent contractors.
•         Decide how you’ll be paid and how you will pay hires.
•         Know the set of tax payment and filing rules that apply to you.
•         Form 1040 and in what cases Schedule C, Schedule C-EZ, and Schedule SE apply.
•         Tax deductions that you may be able to claim depending on the kind of business you own, as well as for health insurance and personal expenses
•         Tax breaks for contributing to a self-employed retirement plan or a traditional IRA.
•         Develop a good record-keeping system for your business.

What I Wish I Knew About Taxes for Freelancers When I Started

By Erin Lowry

Image source: https://blog.taxact.com/wp-content/uploads/What-I-wish-I-knew-about-taxes-when-I-started-freelancing.jpg

•         Keep a record of all your freelance earnings – don’t expect all clients to send you a 1099-MISC.
•         City, state, federal, and self-employment taxes can take up to 40% of your income.
•         Set up a SEP-IRA for retirement in lieu of a 401(k) and/or Roth IRA.
•         File the quarterly tax estimate to avoid painful penalties and a huge tax bill next season as well as to keep track of deductions expenses.

Freelancers, Here’s How To Do Your Taxes

by Laura Shin

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•         Work with an accountant who specializes in freelancers or small business owners to save money as well as avoid costly claim errors.
•         Be careful with services like TurboTax and H&R Block if you don’t fully understand tax law and applicable deductions.
•         Set aside 10% more of your income if you live in a high-tax state, are unmarried, have no deductions and high income.
•         Communicate what you do and what you buy that’s related to your work – “ordinary and necessary” business expenses in your industry.
•         Keep digital copies of receipts to preserve them.
•         Know the quarterly tax due dates.
•         How you may be able to legally forego quarterly taxes by increasing your withholding tax for W-2 jobs and reducing your W-4 claims.
•         Always pay on time even if you can’t pay the full amount.
•         There are ways to negotiate payment of back taxes.

A Freelancer’s Guide to Taxes

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•         Gather and report all sources of income.
•         Reduce your liability to the lowest allowable amount.
•         Keep business and personal expenses separate because they may fall into gray areas like meals, travel, accommodations, communications, internet, education, and certification.

How big is the problem of tax evasion?

William G. Gale and Aaron Krupkin

•         Deliberate and inadvertent tax evasion.
•         The size of the tax gap and percentage of underreported income.
•         Evasion rates for self-employment taxes in low-income versus high-income households.
•         The IRS conducts fewer audits and provides lower-quality taxpayer service.

Freelance Taxes: Simple Tips for the Self-Employed to Avoid Losing Money

By Sean Brison

Image source:  https://www.listenmoneymatters.com/wp-content/uploads/2019/03/LMM-Cover-Images-2.jpg

•         SECA explained.
•         Estimating quarterly taxes.
•         Which tax forms will you need.

Final Thoughts

As a freelancer, you have to take responsibility for tracking your income and expenses and paying your taxes. There is no employer to keep records and fill out forms for you.

By reading through the tips in these articles, you can get a good basic grasp of what you’re facing in terms of taxes owed as an independent contractor. They will also help you develop a system for doing your freelance accounting.

* Disclaimer:  Content represented in this post does not equate to professional legal, accounting or other business advice. FreeUp is not associated in any capacity with the authors of the posts linked herein. The content is for the sole purpose of information sharing, and no claim is made as to the accuracy or completeness of the said information.