Tax Guide: Essential Tips for Freelancers and Self-Employed Professionals

Key Points to Know

• Keep detailed records, such as profit and loss statements, mileage logs, and equipment purchase receipts.
• Earned $400 or more in 2024? You’ll need to pay self-employment taxes, which include Social Security and Medicare.
• If you expect to owe $1,000 or more in taxes, making quarterly estimated tax payments can help you avoid penalties.
• Deductible expenses like home office costs, vehicle use, and equipment depreciation can significantly reduce your taxable income.

Understanding Self-Employment Taxes

If you’re self-employed and earn $400 or more in 2024, you’re required to pay self-employment taxes. These cover Social Security and Medicare. The tax amount is based on your net earnings, so you’ll first need to calculate your net profit from your business operations.

Stay on Top of Quarterly Tax Payments

Unlike employees who have taxes withheld from their paychecks, freelancers are responsible for paying taxes themselves. The U.S. tax system operates on a pay-as-you-go basis, so quarterly estimated tax payments for income and self-employment taxes are essential. Missing these payments or underreporting income can result in penalties and interest.

Save Big with Retirement Contributions

Retirement savings don’t just secure your future—they can also reduce your taxes. Here’s how you can take advantage:

2024 Contribution Limits

• Contribute up to $23,000 in pre-tax earnings to a Solo 401(k). If you’re 50 or older, you can add an extra $7,500.
• Add up to 25% of your net self-employment income, with a combined cap of $69,000 (or $76,500 if you’re 50+).

Setting up a Solo 401(k), SEP-IRA, or another retirement plan can help you maximize these benefits while preparing for your future.

Maximize Your Deductions

As a freelancer, you can claim a variety of deductions to reduce your taxable income. The IRS allows you to deduct expenses that are both ordinary and necessary for your business. Common deductions include:

• Home Office Expenses: Deduct a portion of your rent or mortgage interest, utilities, phone, and internet costs.
• Vehicle Expenses: Choose between actual automobile expenses or the IRS standard mileage rate.
• Depreciation: Write off certain property and equipment purchases used for your business.

By taking full advantage of these deductions, you can lower your tax bill significantly.