If You Made $10K Freelancing Last Year, Here’s How To Handle Taxes
When it comes to your freelance work, the song that comes to mind is “It Was a Very Good Year.” Even if you’re no Frank Sinatra, you have been extremely productive, earning $10,000 in freelance income last year. Now comes the less glamorous part: handling taxes. And Ol’ Blue Eyes didn’t have a tune for that.
While MoneyLion isn’t musically inclined, we can help you build a smart, realistic tax strategy for your $10,000 in freelance earnings.
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Know How Freelance Taxes Work
Understanding how your taxes work as a freelancer can help you build a solid foundation for your tax strategy. Let Melanie Musson, a finance expert at Quote.com, explain it succinctly:
“When you work for an employer, they pay half of your Social Security and Medicare taxes. Also, they withhold roughly what you owe in taxes,” she said. “So, they withhold the other half of your Social Security and Medicare taxes, as well as federal, state and local taxes, from what you earn.”
As a freelancer, you’re responsible for covering 100% of those taxes yourself, including self-employment tax, and paying them throughout the year.
Musson says it’s your responsibility to pay estimated taxes quarterly. A common rule of thumb is to set aside 25% to 30% of your net freelance income for taxes. While you can technically settle up when you file your return, doing so can trigger penalties if you owe $1,000 or more.
Quarterly estimated tax payments are generally due April 15, June 15, Sept. 15 and Jan. 15 — or the next business day if those dates fall on a weekend or holiday.
As for those penalties, Musson explains that they’re pretty severe. If you owe $1,000 or more, you’ll be charged a failure-to-pay penalty of 0.5% per month on the unpaid balance. If you file your return late, the failure-to-file penalty is much steeper — generally 5% per month, up to a maximum of 25%.
Be Aware of Your Deductions
Deductions can significantly reduce your taxable income, which is especially important when you’re self-employed. Musson wants you to be aware of several significant ways you can reduce your tax bill.
“You can deduct a home office if you have a space used strictly as a home office. People often don’t realize that,” she said. “That deduction can also include a percentage of household utilities, based on the size of the office relative to your home.”
Likewise, taxpayers don’t always realize they can deduct ordinary and necessary business expenses, including supplies, software subscriptions and other materials — as long as they’re used exclusively for freelance work.
Another often-missed deduction: health insurance premiums. Musson says freelancers may be able to deduct them if they aren’t eligible for coverage through a spouse’s employer-sponsored plan.
Have you been contributing to a specialized retirement plan like a SEP IRA, solo 401(k) or SIMPLE IRA? Those contributions may be deductible and reduce your taxable income.
Keep Very Good Records
For freelancers, recordkeeping is more than just an art form or a best business practice — it’s an essential part of life. When tax season arrives, you’ll need documents like 1099-NEC forms from clients. But even if you don’t receive a tax form, you’re still required to report that income. So keep copies of invoices, contracts and payment records to support what you earn.
Musson also advises holding on to receipts for business-related expenses, including health insurance premiums.
“If you haven’t kept receipts, check your email. Many of these payments come with an email receipt,” she said. “You can also contact the companies you paid and ask for receipts from the past year.”
The Bottom Line
Congratulations on having a great year as a freelancer. Here’s hoping for an even better one this year. To make filing your taxes easier as you build your freelance business beyond the $10,000 mark, learn how taxes work, take advantage of eligible deductions and keep solid records year-round.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal, or tax advice.
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