Though this year’s Tax Day came and went just this week, we’re already looking ahead to next year’s Tax Day. Whether you are just getting into the freelancing game, or you’re a project-based worker who struggled with this year’s taxes, setting aside some time now to prepare for next year will save you time and stress.
When you’re self-employed, as many freelancers are, your taxes are not withheld from your paycheck like traditional employees’ taxes are. Instead, you have two options. You can pay your taxes every quarter, or you can pay them once a year, which tends to be on or before April 15.
If you owe less than $1,000 or did not earn a freelance income in the prior year, you do not have to pay quarterly taxes. Of course, there are special situations, so be sure to either ask a financial advisor or do your own Google sleuthing to determine if you should be paying every quarter.
It’s recommended that throughout the year, freelancers set aside 30 percent of their income for taxes. The amount you actually pay may be a little less, but it’s important to have a cushion in the case that you owe more than you expect. The 30 percent covers not only income taxes, but taxes charged for being self-employed.
Our recommendation? If you’re a freelancer, open a high-yield savings account and set your tax money aside there, keeping it separate from your retirement savings and your everyday savings.
Your money will grow ever-so-slightly in that high yield savings account, and there’s no risk to pulling it out when you need to pay taxes. If anything you may have a little bonus leftover.
We can tell our values by looking at our checkbook stubs.
- Gloria Steinem