5 Simple Ways to Avoid Huge Taxes on Your Freelance Income
As a freelancer, you enjoy flexibility and freedom in your work. However, you also have extra responsibilities at tax time. You could get stuck with a massive bill without proper tax planning for freelance workers. Follow these five tips to keep more of your hard-earned freelance money.
Track Income and Expenses
Meticulously tracking income and expenses is critical for freelancers. Use accounting software or spreadsheets to log all earnings and business costs. This provides the documentation that you need to maximize your deductions.
Take Advantage of Deductions
Many business expenses like home office costs, equipment, supplies, internet service, mileage, and more can be deducted. Stay organized with receipts and records in order to deduct all legally permissible expenses.
Contribute to Retirement Accounts
Contributing to a SEP IRA, Solo 401k, or other retirement plan can drastically reduce your taxable income. In 2023, you can contribute up to $22,500 to a Solo 401k, plus an employer contribution of up to 25% of net earnings.
Explore Small Business Tax Credits
Don’t overlook tax credits for small businesses. Also, a credit like the Earned Income Tax Credit (EITC) could trim your tax bill if you qualify. Talk to your tax preparer about what credits apply to your situation.
Work with a Tax Pro
Partnering with a tax professional like Agro Accounting CPA, experienced in freelance/contractor taxes, can uncover more ways to minimize your tax liability. Their expertise pays for itself through tax savings.
With attention to detail for income and expense reporting, brilliant business deductions, retirement contributions, and guidance from a tax pro, freelancers can avoid the tax trap of huge payments every April. Adopt these practices of tax planning for freelance workers early in your freelance career, to maximize earnings.
