Tax Tips for Freelancers and Side Hustlers

Freelancers and side hustlers in the United States face unique challenges when tax time comes around. Unlike a regular job where taxes are taken out of your paycheck, freelancers have to handle taxes on their own. This can seem scary, but don't worry! With some simple tips, you can understand the basics and feel in control of your taxes.

What Are Self-Employment Taxes?

When you work for yourself, you are considered self-employed. This means you not only pay regular income tax on your earnings, but you also pay self-employment taxes. Self-employment taxes are mainly Social Security and Medicare taxes. In a normal job, your employer takes care of part of these taxes and withholds them from your paycheck. As a freelancer or side hustler, you have to pay the full amount yourself. In the U.S., this is about 15% of your profit (the money you have left after your business expenses). These taxes help fund programs like Social Security and Medicare for your retirement and health care.

Keep in mind that you only pay self-employment tax if you made more than a small amount (around $400 in profit) from your freelance work in the year. If you earned less than that, you probably won't owe self-employment tax, but you still have to report that income on your tax return. Most active freelancers will earn over this amount, so plan on these taxes if you're doing gig work regularly.

What Are 1099 Forms?

If you freelance or have a side gig, you might hear about 1099 forms. A 1099 form is a tax document that businesses send to people who are not their employees, to report how much they paid them. For example, if a client paid you $600 or more in a year, they should send you a 1099 form. This form usually arrives by January of the next year and shows the total amount they paid you. The common type of 1099 for freelance income is called a 1099-NEC (Nonemployee Compensation).

It's important to remember that even if you don't receive a 1099 form, you still need to report all the money you earned. If a client paid you less than $600, they might not send a form, but you must include that income on your tax return. Keep track of every payment you get from your freelance or side jobs, because it's all part of your income. Unlike a W-2 (which reports income from a regular job with taxes already taken out), a 1099 shows income where no taxes have been taken out yet. That means it's your responsibility to make sure taxes are paid on that money.

Tax Write-Offs and Deductions

One of the best parts of being self-employed is that you can use tax write-offs, also known as deductions, to lower your taxable income. A deduction is a business expense that you can subtract from your total earnings so you only pay tax on the money left after those expenses. In simple terms, you don't have to pay tax on money you needed to spend to do your work.

For example, if you earned $5,000 from freelancing and spent $1,000 on business needs, you would only be taxed on $4,000. (That’s because $5,000 minus $1,000 in expenses equals $4,000 of taxable profit.) It's like only paying taxes on your profit, not on everything that came in.

Common write-offs (deductions) for freelancers and side hustlers include:

• Home office expenses: If you use a part of your home just for work, you can deduct a portion of your rent or mortgage, as well as related bills like electricity or internet. For instance, if you have a small office space at home for your freelance work, you can deduct a percentage of your housing costs based on the space you use for business.

• Equipment and supplies: Money you spend on things like a computer, printer, tools, or even software and office supplies for your business can be deducted. These are necessary items you buy to do your job (for example, a graphic designer's laptop or an Uber driver's car expenses).

• Travel and vehicle expenses: If you drive your car to meet clients or do gig work, you can deduct mileage (a set rate per mile driven for business) or a portion of your car expenses for those work trips. Also, if you travel for business (like going to a work-related conference with airfare and hotel), those costs can be written off too.

• Phone and internet: If you use your phone or internet for your work, you can deduct the portion that is used for business. For example, if about half of your internet use is for your freelance job, you could deduct 50% of your internet bill as a business expense.

These deductions lower the amount of income the government will tax. Be sure the expenses are truly related to your work. Buying a new laptop for your freelance graphic design job counts as a business expense, but buying a TV for your living room does not. Always save receipts or records of these expenses (more on that in the record-keeping section). That way, if the IRS ever asks for proof (this is called an audit), you can show that these expenses were real and necessary for your business.

Paying Taxes Quarterly

When you have a regular job, taxes come out of each paycheck throughout the year. But as a freelancer or side hustler, since no one is withholding taxes for you, the government expects you to pay taxes throughout the year on your own. These are called quarterly estimated tax payments. "Quarterly" means four times a year – in the U.S., the due dates are usually mid-April, mid-June, mid-September, and mid-January.

Why pay quarterly? Imagine if you waited until the end of the year to pay all your taxes at once – the bill could be very large and hard to handle. Also, the IRS (the government's tax agency) may charge you a penalty for not paying during the year. To avoid this, freelancers make smaller tax payments every few months.

You generally need to pay estimated taxes quarterly if you expect to owe $1,000 or more in taxes for the year (after subtracting any taxes your employer withheld, if you also have a regular job). When you send these payments, you're basically pre-paying some of your tax. Think of it like paying your bills in installments rather than all at once.

For example, let’s say you estimate that you’ll owe about $4,000 in taxes for your freelance income this year. Instead of paying $4,000 in April next year, you would pay roughly $1,000 each quarter throughout this year. The typical quarterly deadlines are:

• April 15 – for income earned in January, February, March

• June 15 – for income earned in April, May, June

• September 15 – for income earned in July, August, September

• January 15 (of the next year) – for income earned in October, November, December

Mark these dates on your calendar. Paying on time throughout the year means you won't have a huge surprise tax bill in April, and you can avoid extra fees for late payments. If you're not sure how much to pay, you can estimate based on last year’s taxes or ask a tax professional for help. It’s okay to pay a bit more than you owe, too – you'll get a refund if you overpay.

Keeping Good Records

Good record-keeping is the secret weapon for stress-free tax filing when you're self-employed. Keeping records means tracking all the money you earn and all the money you spend on your business. If you stay organized as the year goes on, tax time will be much easier.

Here are some ways to keep good records:

• Track your income: Write down every payment you receive from your freelance or side jobs. You can use a simple notebook, a spreadsheet, or a bookkeeping app. Note the date, who paid you, and the amount. This helps you add up your total income accurately (and it will match the amounts on any 1099 forms you get).

• Save your receipts: Whenever you buy something for your business (like supplies, a work lunch, or an online service), save the receipt. You can keep paper receipts in an envelope or folder. You can also take photos of receipts and store them in a special folder on your computer or phone. These receipts are proof of your expenses. If you ever need to show what you spent for work, you'll have the details.

• Organize expenses by category: It might help to group your expenses into categories, like Travel, Supplies, Home Office, etc. Then, at the end of the year, you can easily total up how much you spent in each category for your tax forms. This way, nothing gets overlooked when it's time to claim your deductions.

• Use separate accounts if possible: Consider using a separate bank account or credit card just for your freelance business. If you do this, all your business income and expenses will go through that account. It makes it much easier to see what money is for business versus personal. This isn’t required, but it can make sorting your finances a lot simpler.

By keeping clear records of your income and expenses, filling out your tax return becomes much easier. You'll know exactly how much you earned and what you spent on your business. Plus, if the IRS has any questions, you'll have the answers ready in your organized files.

Tips for Staying Organized and Prepared

Being organized throughout the year will save you a lot of time and stress during tax season. Here are some friendly tips to help you stay on top of things:

• Set aside money for taxes: Since no employer is withholding taxes for you, get into the habit of setting aside part of each payment you receive. A good rule of thumb is to save about 25-30% of your freelance income for taxes. For example, if you get paid $500 for a project, put around $125-$150 of it into a savings account for taxes. This way, when it's time to pay taxes (quarterly or at year-end), you'll have the money ready and won't be caught off guard.

• Mark your calendar with tax dates: Keep reminders for important tax deadlines. Note the quarterly estimated tax due dates (April 15, June 15, September 15, and January 15) and the annual tax filing deadline (usually April 15 for your federal tax return). Having alerts on your phone or marks on a calendar can help make sure you never miss a date.

• Stay on top of paperwork: Don’t let receipts and forms pile up and get lost. Set aside a specific time each week or month to organize your finances. For instance, you might decide that every last Sunday of the month is when you update your income and expense records and file any new receipts. Regular small check-ups are much easier than trying to sort a whole year's worth of paperwork at once.

• Use simple tools: You don't need to be an accounting expert to keep track of your finances. Use whatever tools work best for you. It could be a basic spreadsheet or a simple budgeting app that lets you log income and expenses. There are also user-friendly tax apps made for freelancers that can help estimate taxes and store records. Pick something easy that you will actually use regularly.

• Ask for help if you need it: Taxes can be confusing, especially the first time you file as a freelancer. If you're unsure about something, don't hesitate to ask a tax professional or an accountant for advice. You could also talk to experienced friends or colleagues who freelance – they might share how they handle their taxes. It's okay to seek help. Sometimes spending a little money on professional advice can save you from mistakes and even save you money in the long run.

• Keep personal and business finances separate: As mentioned above, using a separate bank account for your freelance income and expenses can keep you more organized. It makes it clear what money is related to your work. This helps you not accidentally mix up personal purchases as business expenses, and vice versa. It also makes your bookkeeping simpler.

• Keep learning: Tax rules can change over time, and there might be new deductions or credits you can use. Make it a habit each year to check if there are any tax changes that affect freelancers. The more you know, the more confident you'll be. But don't worry – once you learn the basics (like in this guide), handling your taxes will become easier. Each year, you'll get more comfortable with the process.

By following these tips, you will be well-prepared when it's time to do your taxes. You’ll thank yourself in April when everything is sorted out and you can file your tax return without panic. Remember, being a freelancer or side hustler gives you flexibility and independence, and with a bit of organization, tax time can be just another part of your business that you handle with confidence!