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Home Business & Finance Did you start freelancing in 2020? Here’s what you need to know...

Did you start freelancing in 2020? Here’s what you need to know for tax season.

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Summary (IA Generated)

There’s one thing that’s for certain when you go from full-time employee to freelancer: your taxes get a whole lot more complicated.

As a freelancer, you need to be proactive about figuring out how much you owe and making those payments on time.

And please note: I am not a tax professional but am a full-time freelancer navigating the complicated tax space of multiple states and 1099s.

This means you’ll account for your business income on your personal tax return.

If you’re set up as an LLC or S Corp, you’ll need to follow different procedures and should seriously consider hiring someone to help you with your taxes.

Even if you are a sole proprietor, hiring a tax professional can be a worthwhile investment, said freelance personal finance journalist Christopher Taylor.

As a freelancer, you’re responsible for paying your federal income taxes, Medicare and Social Security taxes.

And if you collected unemployment, you’ll have to pay taxes on that money as well.

A credit card statement isn’t enough,” said Jonathan Medows, a New York certified public accountant who specializes in working with freelancers.

Since taxes haven’t been paid on the money, you’ll see the full payment amount on these statements.

You are responsible for managing your deductions, understanding the rules and making your tax payments on time.

Remember, as someone who is self-employed you can deduct more than just rented office space, business cards, web hosting and professional memberships.

Any retirement contributions you make to traditional individual retirement accounts (or IRAs) and self-employed retirement accounts like simplified employee pension IRAs (or SEP IRAs) and 401ks are tax-deductible, an approach that can shave an additional $6,000 to $57,000 from your taxable income in 2020 while helping you save for your future.

A smart way to approach this is by putting 30% of every check into a separate account to pay your estimated taxes by these due dates.

While annual payments are an option, Medows recommends paying estimated taxes quarterly if you’re turning a profit.

Waiting until the final tax payment deadline can result in a tax bill bigger than a freelance journalist with a volatile income in a topsy turvy industry may be ready to pay.


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