Once you have switched over from the traditional modes of employment and start freelancing, taxes become your sole burden. When you were in a company, your employer used to handle all your tax forms and file for a refund check if necessary. But now that you are self-employed, you have to handle it all on your own. It is always difficult to understand the tax return process the first time round, but once you get the hang of it you will become a pro at it.
FREELANCERS’ GUIDE TO FILING TAX RETURNS
As a freelancer, you must now sit down and carefully understand what the process of filing tax returns is and why you must file on time. The following are six tips to help you start the process of filing your tax returns.
It Is Essential To File Quarterly
If you think that you only pay your taxes once during the tax season and that’s it, then you are mistaken. Any employee, whether working in a company or is self-employed, has to file his or her taxes quarterly. Your employer used to do this in a company but as a freelancer, you will now have to take the responsibility of filing your taxes quarterly.
If you do not pay your taxes quarterly, you will be charged a very heavy penalty and may ending up pay a huge amount when filing your returns. There is no need to worry as the entire process is explained on the Internal Revenue Service website. If you plan on using a tax software, they will provide you with quarterly forms to fill out for your tax returns.
Record Everything
As a freelancer, you will have to keep a tab on all your expenditures and documentation. Since now there is no employer to keep a record of all your work, you need to do it on your own. As you receive any sort of payment or you spend money on something, note it down. Also, make sure you keep all payment slips and documents so that you have proof for the Internal Revenue Service.
If you are freelancing with a particular company, make sure you keep a check on what it records about you. This is because if the company is not careful about its records, then there might be discrepancies between what you state in your tax forms and what they state in their tax forms about you.
Invest In Software
It might be a bit expensive but tax software really helps keep all your records properly organized. Any document or payment can be easily entered into the software and it will store it permanently. Thus, you do not have to maintain files and files of your documents and you will not have to worry about losing any important documentation.
Moreover, you will have permanent proof to show the Internal Revenue Service department. Your tax records will have no discrepancies and you will not have to pay any penalties or interest.
Get Your Tax Forms On Time
The company you are freelancing is required by law to send you the tax documentation so that you can file your tax returns. It is essential that you hassle them for the forms so that you can file as early as possible and can get your refund checks as quickly as possible.
State All Your Payments
If you freelance with a company based out of the United States, they will not be mandated to send you the tax forms. But, since you still have to pay taxes on this income, you will have to report it on your own to the Internal Revenue Service. If you do not report this income, you can land in serious trouble with the Internal Revenue Service. If a company pays you less than a certain minimum amount, you will again have to report it on your own.
Save, save, save
If you work as a permanent employee in a company, the employer generally pays half of your social security. However, when you freelance, you have to pay the entire amount on your own. Thus, it is essential to keep saving your money as a freelancer so that if you ever have to pay extra money, you will have the funds to do so.
It may take a while for you to get used to filing your tax returns as a freelancer, but if you keep these six tips in mind, you will be able to handle your returns easily within no time. Just remember to maintain all payments records, use a software, ask for tax forms and save all your money.
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