What I Learned About Taxes in My First Year of Freelancing

 When I first transitioned to freelancing, I was excited about the freedom and flexibility that came with being my own boss. No more 9-to-5 grind. However, I quickly realized that freelancing also meant that I would be responsible for my own taxes. No one would be automatically deducting them from my paycheck. This revelation hit me hard during tax season.

The Tax Realization

I’d heard about freelancers needing to pay their own taxes, but it didn’t quite hit me until I saw how much I owed.
I had set aside some money, but it wasn’t nearly enough. The anxiety was real when I realized that I would have to pay not only income taxes but also self-employment tax, which was much higher than I expected.

Estimated Taxes: A Freelancer’s Obligation

One of the first things I learned was about estimated taxes. As a freelancer, you need to pay your taxes quarterly, not just annually. The IRS expects freelancers to submit payments four times a year. This was a huge learning curve for me.
Without any deductions from a regular employer, it’s up to you to set aside money for taxes. I didn’t fully realize how much money I needed to save, so my first tax bill was a big wake-up call.

How Much to Save for Taxes?

I quickly learned that the best practice is to set aside about 30% of your income for taxes. This includes both federal income tax and the self-employment tax.
It was a bit of a shock to think I was saving that much of my income, but it quickly became clear that it was necessary. I started setting aside 30% of each paycheck, which helped me stay ahead of the curve.

The Self-Employment Tax: A Double Tax Burden

The self-employment tax is another important factor that freelancers must deal with.
This tax covers Social Security and Medicare, and it’s a hefty 15.3% of your net income. I didn’t fully grasp how much this tax would affect my overall earnings, and it made my tax burden much larger than I had anticipated.
However, there are some deductions that can help lower this burden, such as business expenses—things like office supplies, home office space, and software subscriptions can reduce your taxable income.

Tracking Business Expenses

In the beginning, I didn’t track my business expenses, but I quickly learned that I could deduct certain costs from my taxes. I started keeping track of everything from office supplies to software costs, and I began using an accounting software to manage my finances.
Tracking expenses isn’t just about saving money—it’s about making sure you’re not paying more taxes than you need to. I started categorizing my expenses and learned how much of my business costs were deductible.

The Key to Staying on Top: Organization

To manage my taxes effectively, I created a system.
I opened a separate savings account just for taxes and set up an automatic transfer every month to ensure that I was consistently saving 30% of my income. This gave me peace of mind knowing that I wouldn’t have to scramble for money come tax season.

Additionally, I set reminders to pay my quarterly estimated taxes. I didn’t want to fall behind again, so I scheduled everything well in advance to avoid any penalties or interest charges.

The Importance of Professional Help

In my second year, I hired an accountant to help me with tax planning and filing. While it was an additional expense, having a professional who knew the ins and outs of freelance taxes saved me a lot of stress. The accountant also helped me find more deductions that I missed, which ended up saving me money.

What I Do Now to Stay Ahead

Now that I’m in my second year of freelancing, I’ve got my system down.
I set aside 30% of every payment I receive and pay my estimated taxes quarterly.
I track my income and expenses regularly and use tax software to stay organized.
While taxes will always be part of freelancing, I’ve learned to manage them proactively.

Final Thoughts

Freelancing is a rewarding career, but taxes can be one of the more stressful aspects.
The key takeaway is to start saving for taxes early and pay estimated taxes regularly.
It’s important to stay organized and track your income and expenses to avoid surprises.
Freelancers can also benefit from the help of a professional, especially when it comes to maximizing deductions and minimizing their tax burden.

With these strategies, I feel much more in control of my finances. Taxes are no longer something that causes me stress—they’re simply part of my routine as a freelancer.

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