As a freelancer, taxes can be confusing. It’s easy to make mistakes and end up paying more than you owe or not taking advantage of all the deductions available to you. To make sure that doesn’t happen, here are five common tax mistakes you should avoid as a freelancer.
Not Staying Organized
The first mistake freelancers often make is not staying organized when it comes to their taxes. That means keeping track of expenses, income, and any other relevant documents throughout the year instead of waiting until April 15th to start gathering them together. This will save you time and headaches come tax season.
Not Claiming All Deductions & Credits You’re Eligible For
Freelancers have access to many deductions and credits they might not even know about. These include deductions for business expenses like office supplies, mileage, travel expenses, meals and entertainment, health insurance premiums, retirement savings contributions, home office expenses (if applicable), and more. Make sure that you’re taking advantage of any deductions or credits that apply to your situation so you don’t pay more than necessary in taxes.
Not Setting Money Aside for Taxes
One mistake freelancers often make is failing to set money aside for taxes throughout the year. Doing so ensures that you’ll have enough money when it’s time to file your taxes without having to scramble to find the funds or take out an expensive loan at the last minute. A good rule of thumb is setting aside 25-30% of every paycheck for taxes so you don’t end up with a massive bill come April 15th.
Filing Taxes Late
Another mistake freelancers tend to make is filing their taxes late or missing the filing deadline altogether—even if they’ve paid their taxes on time! Filing late can result in costly penalties from both the IRS and state tax authorities, so make sure you meet all filing deadlines each year or risk being hit with hefty fines (and potentially an audit).
Not Knowing What Forms
Depending on your situation (for example, if you have employees or use contractors), there may be certain forms that need to be filed with your taxes each year in addition to your individual return form(s). Make sure that if this applies to you that you’re familiar with all required forms so nothing slips through the cracks come tax time!
Taxes can be confusing for freelancers but avoiding these common mistakes can help ensure that your finances stay in order during tax season each year. By staying organized throughout the year, claiming all deductions/credits available to you, setting aside enough money for taxes, and knowing what forms need filing (and when!), filing your taxes will become a much smoother process over time!