Being a freelancer has so many benefits. You can set your own hours, work from any location, and make extra money doing work you love. But once a year, we all have to buckle down and file our taxes, and as a freelancer, that can feel overwhelming.  

Whether you’re a seasoned entrepreneur or just starting out, understanding your tax obligations is crucial to avoiding potential headaches and maximizing your earnings. In this guide, we’ll break down everything you need to know about freelance taxes and offer practical tips to help you stay on top of your financial game.

1. Know Your Tax Filing Requirements

Understanding your tax filing requirements is the first step to complying with the law. As a freelancer, you’re considered self-employed, which means you’re responsible for reporting and paying taxes on your income. This includes not only federal income tax but also self-employment tax, which covers Social Security and Medicare contributions.

How much you will owe depends partly on how your business is set up — sole proprietorship, S Corp, LLC — because each entity is subject to different tax rules. When you first begin operating your online business, it can be helpful to research the pros and cons of different business entities to determine which one suits you best.

2. Keep Detailed Records

Painless freelance tax preparation requires accurate record keeping. Keep track of all your income and expenses throughout the year, including invoices, receipts, and other relevant documents. This will not only make it easier to handle your taxes but also help you claim deductions and credits that can reduce your tax liability.

Remember, you won’t have an employer sending you a W2 for income from your own business. So, you’ll want to track every dollar you earn whether your clients pay you in cash, via Venmo or another pay app.

You don’t need a fancy tracking method or expensive software. In the beginning, most of us can use a simple spreadsheet to record our income and expenses. As your business grows, you may benefit from financial applications like Quickbooks or Wave. The key takeaway? Document every dollar your business earns and spends.

3. Open a Separate Business Bank Account

Keeping business and personal accounts separate helps simplify bookkeeping, reduces the risk of mixing personal and business expenses, and makes it easier to identify deductible business expenses come tax time. 

Additionally, separating accounts can protect your personal assets in case of legal issues or IRS audits, providing a clear distinction between your business and personal finances.

To learn more, check out our article on the best freelancer bank accounts.

4. Understand Deductions and Credits

As a freelancer, you may be eligible for various deductions and credits to lower your taxable income. Common deductions include business expenses such as office supplies, equipment, and travel costs. Additionally, you may be able to deduct a portion of your home expenses if you use a home office for your freelance work. 

This is one reason your detailed tracking will be so helpful when it’s time to file — you’ll have a clear record of deductible expenses, and that may reduce how much you owe in April.

5. Make Estimated Tax Payments

Unlike employees who have taxes withheld from their paychecks, freelancers make quarterly estimated tax payments to the IRS. These payments help you avoid underpayment penalties and reduce the possibility that you’ll have a large tax bill at filing time because you’ve been paying throughout the year.

In your first year of your side hustle, you may not know exactly how much to pay, so set aside approximately 30 percent of your earnings to be safe. As you keep track of your income and expenses over time, it will get easier to estimate your tax liability accurately and make timely payments.

6. Consider Working With a Tax Professional

Navigating freelance taxes can be complicated, especially as your business grows. Consider working with a tax professional who specializes in helping freelancers and small business owners. 

An accountant can help you maximize your deductions, stay compliant with tax laws, and develop a tax strategy that aligns with your financial goals. They may also help you reduce how much you owe all at once by calculating your estimated tax accurately and reminding you to pay each quarter.

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7. Plan for Retirement

As a freelancer, you don’t have access to employer-sponsored retirement plans like 401(k)s. However, you can still save for retirement by contributing to a self-employed retirement account such as a SEP IRA or Solo 401(k). 

Not only will this help you build a nest egg for the future, but it can also provide valuable tax benefits by allowing you to deduct your contributions from your taxable income.

Final Words

Figuring out freelance taxes doesn’t have to be daunting. By staying organized, understanding your tax obligations, and taking advantage of available deductions and credits, you can minimize your tax liability and keep more of your hard-earned money. 

Remember to plan throughout the year, seek professional guidance when needed, and stay proactive in managing your finances. If you want to learn more about taxes, our course Brilliant Bookkeeper gives all the information you need to start a bookkeeping business and handle freelance taxes. With the right approach, you can thrive as a freelancer, and build a business, all while staying on top of your tax game.


Do I need to pay taxes on all of my freelance income? 

Yes, as a freelancer, you’re required to report and pay taxes on all income you earn, including payments for services rendered, product sales, and any other sources of income related to your freelance work.

What expenses can I deduct as a freelancer? 

Freelancers can deduct a wide range of business expenses, including but not limited to office supplies, equipment purchases, software subscriptions, website hosting fees, training and certifications, travel expenses, advertising costs, and a portion of home expenses if you use a home office for your freelance work. The IRS defines deductible business expenses as expenses that are “ordinary and necessary costs of doing business.”