{"id":17731,"date":"2022-02-28T11:02:00","date_gmt":"2022-02-28T10:02:00","guid":{"rendered":"https:\/\/www.invoiceberry.com\/blog\/?p=17731"},"modified":"2024-06-24T17:51:56","modified_gmt":"2024-06-24T15:51:56","slug":"freelancers-get-more-money-back-on-taxes","status":"publish","type":"post","link":"https:\/\/www.invoiceberry.com\/blog\/freelancers-get-more-money-back-on-taxes\/","title":{"rendered":"6 Hacks for Freelancers to Get More Money Back On Their Taxes"},"content":{"rendered":"\n

Tax season is rapidly approaching, so it\u2019s a good idea to reflect on your current financial situation. Many people who now work from home have left their traditional job in favor of more flexible freelancing work. However, for those who are new to freelancing<\/a>, taxes can seem threatening and impossible to understand. <\/p>\n\n\n\n

Everyone has to pay taxes, even if they are self-employed, but that doesn\u2019t mean it has to be harder than with traditional employment.<\/p>\n\n\n\n

By educating yourself about taxes, you can enjoy the flexibility and freedom of working wherever you want while deducting work-related expenses<\/a> from your tax bill. This article will focus on what you, as a freelancer, need to know about taxes and how to keep more money in your pocket when it\u2019s time to fill out the tax declaration.<\/p>\n\n\n\n

1. Calculate Deductible Business Expenses<\/h2>\n\n\n\n
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Earning money as a freelancer is one thing, but freelancers also have to contend with their business expenses. In a traditional work environment, your company will cover the costs of an office and the supplies necessary to perform work. As a freelancer, you\u2019ll be spending your own money to make sure you\u2019re able to accomplish your work.<\/p>\n\n\n\n

Deducting certain expenses from your taxable income<\/a> is the first tip for getting more money back on your taxes. Essentially, you need to monitor the costs required for your job and then document them.<\/p>\n\n\n\n

For example, big purchases for your office like a printer, computer, or even a new desk can all be considered part of your business expenses. Keep track of smaller purchases such as pens, paper, and even sticky notes because these small payments add up over time. Consider investing in software to help generate reports<\/a> to monitor your expenses.<\/p>\n\n\n\n

Expenses don\u2019t have to be physical supplies either; they can include advertising, software, and even insurance. Anything you use for work, even if it\u2019s personal, can be included in your business expenses to reduce your tax liability.<\/p>\n\n\n\n

Vehicles are often one of the largest expenses, but they can also be deducted. Include how much you spend on gas and your travel time to work. <\/p>\n\n\n\n

These are just a sample of some of the costs you can incorporate into your business expenses. Learning more about small business finance can help you understand how your business expenses work. Later, we\u2019ll look more at why keeping track of what you spend is so important.<\/p>\n\n\n\n

2. Claim Home Office Tax Deductions<\/h2>\n\n\n\n

Besides avoiding the morning and evening commute, freelancers that work from home often get to hang out with their favorite furry friend all day. Freelancers that use their spare bedroom, garage, or basement to work are all still eligible for home office tax deductions.<\/p>\n\n\n\n

To maximize how much you get back on taxes, leverage the home office tax deductions<\/a> to get more money back on your return. According to the Internal Revenue Service (IRS), your home must be the principal place for your business. Whatever area of your home you use must be specifically used for your business regularly.<\/p>\n\n\n\n

Remember, you can choose any part of your home for the home office tax deductions subject to the IRS\u2019 terms. This deduction is a great way to cut down on your taxes. Later, we\u2019ll take a brief look at some other possible deductions you can consider.<\/p>\n\n\n\n

3. Organize Your Business\u2019 Paperwork<\/h2>\n\n\n\n

When you run your own company, staying organized is essential to growing your business. You can use different software to help manage your paperwork and keep you on track. Staying organized is also a great way to get more money back on your taxes. It includes tax forms, invoices<\/a>, and anything else you might use for your business.<\/p>\n\n\n\n

Some of the most important forms are the tax forms you can acquire from the IRS. The 1099-MISC<\/a> is used to collect annual income, and the 1040-ES is used for calculating estimated taxes to pay each quarter of the year. These forms are important to understand, so you can find out how much to pay and what steps to take to get a bigger tax return.<\/p>\n\n\n\n

– Keep Organized Records<\/h3>\n\n\n\n
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Staying organized is paramount to your success<\/a> as a freelancer, but recordkeeping is not only good for maximizing your tax return. It can also help you avoid legal trouble later on. I\u2019ve made a special section on record organization to underline the importance of keeping your paperwork in order as a freelancer.<\/p>\n\n\n\n

First, tracking office supplies, vehicle expenses, and other business-related payments will prepare you for calculating your deductibles. Without keeping diligent records, it\u2019ll be difficult to calculate what these are.<\/p>\n\n\n\n

Secondly, and possibly most significantly, keeping in-depth records will protect you<\/a> if you are audited. Nobody wants to be audited by the IRS, but keeping records of your expenses that you claim for the deduction can help ease this process. Audited taxpayers have to prove that the deductions they claim are legitimate, or they may face additional tax payments and could have a lien placed on their assets.<\/p>\n\n\n\n

Avoid these pitfalls by keeping both physical and digital records of your business. Store them in a safe and secure place and make sure that they are readily available both for yourself and in case you need them for the IRS.<\/p>\n\n\n\n

4. Get Educated on How Freelancers and Self-Employed People Are Taxed<\/h2>\n\n\n
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As a freelancer, you\u2019ll be taxed differently than regular employees. To maximize your tax return, you need to educate yourself on how taxes for the self-employed work. Freelancers are taxed on their net income.<\/p>\n\n\n\n

This means that the money you earn as a freelancer is taxed after<\/em> your business expenses are deducted from your total business revenues. Additionally, self-employed people are taxed twice: once as income tax and second as self-employment tax.<\/p>\n\n\n\n

Finally, your taxes will not be deducted from your pay, unlike at a traditional job. The best way to avoid a huge tax bill at the end of the year is to make your tax payments regularly throughout the year by using estimated taxes.<\/p>\n\n\n\n

– Understand Your Deductions<\/h3>\n\n\n\n

Because deductions play a huge role in how taxes are calculated for the self-employed, you should make sure you are well-educated on how deductions work too. I mentioned business expense deductions<\/a> throughout this article, but these can be further subcategorized. Frequent and most relevant tax deductions are:<\/p>\n\n\n\n