{"id":128133,"date":"2023-05-11T13:47:01","date_gmt":"2023-05-11T13:47:01","guid":{"rendered":"https:\/\/businessyield.com\/?p=128133"},"modified":"2023-05-25T13:47:52","modified_gmt":"2023-05-25T13:47:52","slug":"freelance-tax","status":"publish","type":"post","link":"https:\/\/businessyield.com\/online-business\/freelance-tax\/","title":{"rendered":"FREELANCE TAX: What Is It, How to Calculate It & Rates","gt_translate_keys":[{"key":"rendered","format":"text"}]},"content":{"rendered":"
Being a freelancer means being your own boss, which is great. Go out every day, kill something, and drag it home. And you are not alone. In fact, freelancers are expected to make up the bulk of the U.S. workforce within the next decade. Why not? As a freelancer, you choose your hours, the projects you want to work on, and where you work. You are in charge! But even if you already have a full-time job, freelance work is a great way to make extra money. Let’s be honest, who wouldn’t want more money in their pocket? But here’s the real story! Whether you are a full-time freelancer or just a part-time worker affects how you pay your taxes. And if you’re not careful, huge tax bills can cost you most of your freelance income. <\/p>
According to the IRS, if you plan to pay at least $1,000 in taxes this year, you must pay your taxes quarterly. 3 Taxes on freelance income are not withheld throughout the year, so you will likely need to estimate taxes. Every quarter for the next year she will pay the IRS. So how do we know if we need to do this? Great question. If you’re making less than a few thousand dollars a year as a freelancer, you may want to skip the estimated tax and simply list your freelance income when you file your tax return. <\/p>
However, if you believe you will have to pay more than $1,000 in taxes, you can use form 1040-ES to calculate your annual income and calculate estimated taxes that determine the basis of your forecast. If you have underpaid your estimated taxes, you will have to pay the rest of the tax when you file your annual tax return, as it is ultimately an estimate. On the other hand, if you overpay the estimated tax, the excess will be refunded. <\/p>
US taxes are pay-as-you-go. If you’re making money, even through a side job, the IRS wants to get your cut as soon as possible. For this reason, employers withhold taxes from their employee’s salaries. However, because you are not an employee, you may have to pay estimated taxes during the year.<\/p>
Important forms involved<\/strong>: Form 1040-ES, and W-4<\/p> Quarterly, it may be required to pay the IRS for an estimate of the tax due. (Here’s how it works.) Waiting until the tax deadline to do it all at once can result in fines and interest. Having a partner who works regularly and submits paperwork with you may help you avoid quarterly hassles. <\/p> Freelance tax is a federal tax levied on income earned while self-employed. It consists of two types of taxes. Social Security and Medicare taxes. The Federal Insurance Contributions Act of 1935 guarantees that both employers and employees make regular contributions to Social Security and Medicare funds. For the tax year 2022, the Social Security tax rate was 12.4%, the Medicare tax was 2.9%, and the total tax rate was equal to 15.3%. Collectively these taxes are called FICA taxes. <\/p> To calculate your freelance tax, multiply your self-employed net income (income minus deductible expenses) by 0.9235 (92.35%). Then multiply that figure by the FICA tax rate (15.3% in 2022) to get your estimated self-employment tax. Why 92.35%? Note that as an employee, the employer bears half of his FICA tax burden (7.65%). Employers can write off these payroll tax payments as a deduction from their taxes, and the IRS wants to give the self-employed a similar deduction. Because many taxpayers report self-employed income on their personal tax returns, the IRS automatically applies this 7.65% exemption to self-employed net income before determining the tax amount. <\/p> Whether you’re new to freelancing or have been self-employed for years, there are some tax deductions you should be aware of. There are only expenses that you can claim as a freelancer and expenses that are not deductible. There are also tax credits that can affect your year-end tax return. Therefore, it is important to understand which business expenses you can claim on your tax return as a self-employed person. Here are some tax deductions and incentives for the self-employed. <\/p> Due to the nature of your business, you may be able to deduct credit card interest when filing your Form 1040 federal tax return. If you’re still not sure whether credit card purchases are business-related, ask yourself if it’s normal and necessary to run your business. If applicable, the IRS will certify it as a corporate purchase. This includes but is not limited to mobile phones, meals, salaries, wages, and incidentals. <\/p>Calculate Freelance Tax<\/strong><\/span><\/h2>
Freelance Tax Deductions<\/strong><\/span><\/h2>
#1. Credit Card Interest<\/strong><\/span><\/h3>