Taxes can be stressful and burdensome for every freelancer. This will help relieve some of the pain.
As you are considered self-employed as a freelancer you get the advantage of tax deductions but also the disadvantage of keeping track of these expenses — proving to the IRS that each deduction is accurate and appropriate.
Each freelance check you receive should set aside 25% to 30% for taxes — which should be put in a separate savings account to use when it’s time to pay Uncle Sam. There are a few reasons why the range to set aside is so high, mainly because of the self-employment tax. As an employee, Medicare and Social Security are taken out of your paychecks automatically with the employer paying one-half of 15.3%. Unfortunately, as a self-employed individual, you are expected to pay the entire 15.3%.
If you do not receive a 1099-MISC — a form that companies use to report payments to nonemployees — and received more than $400, you probably were paid through PayPal or another online payment system. If you don’t receive a tax report, understand that you aren’t off the hook come tax time.
You should also receive a 1099-K if you were paid more than $20,000 or more than 200 times, however, if you don’t qualify for a 1099-K, you can use the Schedule C tax form — which serves as an overall tax report for your income and expenses. Schedule C summarizes your 1099 forms into one form, which deducts your expenses from your income. If you had $5,000 or less in expenses, the Schedule C-EZ may be best for you to choose from.