6 Tips for Freelancers This Tax Season

If you're a freelancer or self-employed worker, check out our tips to navigate tax season.

Tax season looks a bit different for freelancers. Unlike W-2 workers, freelancers are considered contractors, and income taxes aren't taken out of their pay. That means they're responsible for making tax payments throughout the year. If you're new to freelancing, you may wonder how to better set yourself up for success.

Whether you're a gig worker, contractor, or own a company, you need to set aside enough money to pay your local, state, and federal income taxes and self-employment taxes and make quarterly payments. Otherwise, you'll owe a lot of money all at once.

If you're in need of some pointers, check out these freelance-friendly tax tips.

1. Keep accurate income records

As a freelancer, you have to report all of your income. If you have multiple side hustles, gigs, or clients, you have to track multiple income streams. Document every payment with care to make tax time easier.

One option is to use software made for freelancers and self-employed workers. Another is to use a spreadsheet to track every payment you receive. When April rolls around, you'll be thankful that you kept such accurate records as you complete your tax return faster.

2. Track business expenses

As a self-employed individual, you can deduct eligible business expenses. According to the IRS, business expenses must be both "ordinary and necessary" to qualify.

Here are some examples of potential business expenses to deduct:

• Home office supplies
• Advertising costs
• Continuing education costs
• Credit card convenience fees

Business expense deductions reduce your taxable income, meaning less tax liability for you. Keep accurate records of your expenses, and keep copies of receipts. If you're not already doing this, now is an excellent time to start.

3. Make quarterly payments to avoid penalties

Freelancers and self-employed workers are required to file an annual income tax return and make estimated quarterly tax payments that include self-employment taxes and income taxes. If you don't make quarterly payments throughout the year or don't pay enough, you pay underpayment penalties -- which means even more money comes out of your pocket.

You'll need to estimate your yearly income to figure out your estimated tax payments. The IRS has a Self-Employed Individuals Tax Center with great resources, including guidance on how to calculate your estimated quarterly tax payments. By making quarterly payments you can avoid penalties and be more prepared for your tax situation.

4. Automate your savings

If you find it easy to forget to save for your estimated tax payments, one simple habit change can make life easier -- automate your savings. We recommend opening a dedicated savings account, and setting up automatic transfers so that money is regularly moved into your savings account. When it's time to make your next quarterly tax payment, the money you need will be there. This one habit has made my own life as a freelancer much less stressful.

5. Hire a professional

If you're brand new to freelance life and feel stressed out, don't be afraid to get the help of a tax professional. The complexities of self-employment tax can be confusing. Plus, you want to make maximize your deductions and credits.

If you don't want to hire an accountant and are ready to tackle your tax return, tax software may simplify the filing process. Take a look at our best self-employment tax software list to find the right software for your needs.

6. Get ready for next year

It's never too early to set up for next year's tax season. Even if it feels too late to implement changes before filing your 2021 taxes, now is the time to plan for success before the next tax season rolls around. Make changes now or in coming months so that filing your 2022 taxes is a breeze. Your future self will thank you.

Tax season doesn't have to be scary for freelancers. Consider implementing some of the above tips so you can feel more in-control as you navigate tax season.