How Freelancers Can File Taxes and Keep Uncle Sam Happy

by adidasw1 · Published August 7, 2022 · Updated August 7, 2022

When starting out, most freelancers have no idea that they can deduct their home office (even when it is not a separate room). They do not know that if they travel miles to see a client, that is a business expense. The IRS will never bother telling you when you miss deductions, so you must educate yourself.

Other than deductions, gig workers, self-employed people, and independent contractors are at a risk of falling into other tax pitfalls. One of the biggest issues is not knowing what amount you should pay in taxes. What Kind of Taxes Do You Have to Pay as a Side Hustler?

Unlike employed people, gig workers do not receive their paycheck with the taxes already deducted. They are the ones that decide how much they will pay to the IRS. The self-employment tax (Medicare and Social Security taxes combined) is fixed at 15.3%.

If you look at an employee’s paycheck, you will see that they pay almost half of this—it is because their employers pay half of it for them. Being both the employee and the employer, you must take care of the amount all by yourself. On to federal income tax. The amount you pay in taxes depends on what you make annually. See the 2018 single filer tax brackets:

10% (earning $1 – $9525)
12% ($9526 – $38700)

22% ($38701 – $82500)
24% (82,501 – $157,500)
32% ($157,501 – $200,000)

35% ($200,001 – $500,000)
37% (Over $500,000)

These rates apply to your taxable income (after factoring in deductions, eligible tax credits and self-employment tax). Unfortunately, there are still more taxes that you must pay as a side hustler apart from those mentioned above. In some states, you will be required to pay state income tax. There are some areas where you must pay local income tax as well. Check the tax rate of your state.

What Does the New Tax Cuts and Jobs Act Mean for Side Gigs? The 2017 Tax Cuts and Jobs Act offers freelancers additional deductions to take advantage of. You can check them out on the IRS website. How Much Money Should You Set Aside for Taxes? For every dollar you earn, save 30%. It is better to overpay and get a refund than pay less.

Do You Need to Pay Estimated Quarterly Taxes? Self-employment taxes and federal income taxes are on a “pay-as-you-go” basis. Pay quarterly if you expect to owe $1000+ in annual taxes. Here are the quarterly taxes due dates: