If you’re self-employed or have a side gig, tax season might feel a little daunting. Whether you’re a freelancer, gig worker, or small business owner, knowing how to do taxes properly ensures you avoid surprises and maximize deductions.
The good news? Doing taxes doesn’t have to be stressful or expensive. With the right resources, including free income tax filing options, you can get through the process with confidence. Here are some important tips to help you stay organized and keep more of your hard-earned money.
1. Know Your Tax Forms
When you’re self-employed, you won’t receive a traditional W-2 like you would from an employer. Instead, you’ll likely receive a Form 1099 from clients or platforms that paid you $600 or more throughout the year.
Not all side hustles are the same, and the type of work you do may determine which tax forms you’ll need. Here are a few common side gigs and the related forms you might encounter:
- Freelancers & Contractors (Writers, Designers, Consultants, etc.)
- Receive Form 1099-NEC from clients who paid you $600 or more
- Report earnings on Schedule C (Form 1040)
- Rideshare & Delivery Drivers (Uber, Lyft, DoorDash, Instacart, etc.)
- Receive Form 1099-K (if earnings exceed $20,000 and 200 transactions) or Form 1099-NEC
- Report business expenses like mileage on Schedule C
- Online Sellers (Etsy, eBay, Amazon, etc.)
- Receive Form 1099-K if you meet the income threshold
- Track inventory costs, transaction fees, and shipping expenses for deductions
- Social Media Influencers & Content Creators
- Receive Form 1099-NEC from brands or Form 1099-K from platforms
- Report advertising revenue, sponsorships, and affiliate income on Schedule C
- Short-Term Rentals (Airbnb, VRBO, etc.)
- Receive Form 1099-K from rental platforms
- Report rental income on Schedule E (Form 1040) instead of Schedule C, unless actively managing as a business
No matter your side hustle, keeping detailed records of payments and expenses will make tax time much easier. Even if you don’t receive a 1099, you’re still responsible for reporting all income to the IRS. If you’re unsure which forms apply to you, tax software or professional assistance can help you file taxes online correctly.
2. Keep Track of Your Expenses
One of the biggest perks of being self-employed is that you can deduct business-related expenses, which can significantly reduce your taxable income. The key is to keep detailed records of all your eligible expenses.
- Here are some common deductions you may be able to claim:
- Home office costs, such as rent, utilities, and office supplies
- Internet and phone bills related to your business
- Software and subscriptions used for work
- Travel expenses, including mileage, lodging, and meals for business trips
- Marketing and advertising costs
- Professional development, such as courses and certifications
By tracking these expenses throughout the year, you’ll make filing your taxes easier and maximize your deductions, helping you keep more of your hard-earned income.
3. Take Advantage of Free Filing Options and Get Help If You Need It
Filing your taxes doesn’t have to be complicated or costly. If your income qualifies, you can use TurboTax Free File or other IRS Free File programs to file taxes online at no cost. These services guide you through the process step by step, ensuring accuracy and helping you claim all eligible deductions.
If you need additional help, free tax assistance programs are available in many communities, providing expert guidance for self-employed individuals. Online platforms also offer valuable step-by-step support to make free income tax filing simple and stress-free. Taking advantage of these resources can help ensure your return is done correctly while keeping more money in your pocket.
4. Set Money Aside for Taxes and Understand Self-Employment Tax
Unlike traditional employees, self-employed workers don’t have taxes automatically withheld from their paychecks. This means you’re responsible for setting aside money for taxes throughout the year. A good rule of thumb is to save at least 25-30% of your income to cover federal, state, and self-employment taxes.
In addition to income tax, you’ll also have to pay self-employment tax, which covers Social Security and Medicare.
- 15.3% is the current self-employment tax rate.
- With 12.4% going toward Social Security;
- And 2.9% for Medicare.
The good news? You can deduct half of your self-employment tax when filing your return, reducing your taxable income.
If you expect to owe $1,000 or more in taxes, you may need to make quarterly estimated tax payments to the IRS. Planning and making estimated payments can prevent financial stress and ensure you’re prepared for tax season, like avoiding penalties and a large tax bill in April.
The IRS provides Form 1040-ES to help you calculate these payments, and many tax software programs can assist with reminders and estimates. Keeping a separate savings account for taxes can also help you manage these obligations without disrupting your cash flow.
5. Retirement Savings for the Self-Employed
Saving for retirement is just as important for self-employed individuals as it is for traditional employees. Fortunately, there are tax-advantaged retirement savings options that can help lower your taxable income while building long-term financial security.
- SEP IRA (Simplified Employee Pension IRA): Allows you to contribute up to 25% of your net earnings, with higher contribution limits than traditional IRAs.
- Solo 401(k): Designed for self-employed individuals, allowing both employer and employee contributions, which can significantly boost retirement savings.
- Traditional or Roth IRA: While contribution limits are lower, these accounts still provide valuable tax benefits depending on whether you prefer tax-free withdrawals in retirement (Roth IRA) or tax-deductible contributions (Traditional IRA).
Making contributions to these plans can reduce your taxable income now while securing your financial future.
6. Health Insurance and Tax Deductions
Self-employed individuals often pay for their own health insurance, but the good news is that these expenses may be deductible. The self-employed health insurance deduction allows you to deduct premiums for medical, dental, and long-term care insurance for yourself, your spouse, and dependents, reducing your adjusted gross income.
To qualify, you must:
- Have no access to an employer-sponsored health plan (including through a spouse’s employer).
- Report a net profit from self-employment in the tax year.
Additionally, medical expenses that exceed 7.5% of your adjusted gross income may also be deductible if you itemize deductions. Taking advantage of these deductions can help lower your overall tax burden while ensuring you have the necessary health coverage.
By Admin –