Freelancing is a growing industry around the world. Advances in collaborative technology have made it possible for remote workers and freelancers to remain integral members of global business.
Going remote is more than just a career for many freelancers – it’s a lifestyle! Working for yourself, choosing your clients and projects, as well as your own hours, and being able to work from anywhere are huge advantages of freelancing. In some instances, this option can be more profitable than full-time employment.
This paradigm shift in the workplace is being largely propelled by millennials. According to our 2020 Freelancer Income Report, 70% of freelancers worldwide are under the age of 35 and 83% of freelancers work from home. While some freelancers split their time between a company and independent side gigs, most are fully self-employed. This trend is likely to continue and expand in the coming years, with more young people choosing the freedom of freelancing.
While working for yourself does have many benefits, there can be some drawbacks such as the fact that freelancers need to file their own taxes. With no employer taking taxes out of your paycheck every month, the burden of accounting for your business taxes and remaining tax compliant is entirely your responsibility.
Whenever you’ll need to file taxes, it’s vital to get your financial affairs in order and prepare your documents. This may not seem important, but correct filing can save you from a headache. On the other hand, accounting errors and misplaced taxes can result in hefty fines. The best policy with taxation is to be prepared.
Check out some of our tips that will help you get ready for tax season!
Between income tax and self-employment taxes covering health insurance, pension, and other benefits traditionally paid for by employers, you should price your services high enough to account for these costs. Estimate around 25-30% over your price to make sure you don’t wind up paying more than you can afford. If you want to get an idea of what taxes you will be liable for, use an online freelance tax calculator set to your tax region.
It is really important not to mix your business and personal funds – make sure you maintain separate accounts so that you can keep track of your business revenue and expenditure. One tip is to link your business account to an online payment processing platform to make cross-border business easier and more trackable.
Collect printed receipts for any business purchase, including utilities, business supplies, and payments to subcontractors. Even if you pay in cash, make sure to get a printed receipt for your files and include it in your tax reporting. Also, retain all of your invoices and billing documents. You can find a range of accounting programs to help you manage your expenditure and income, and many freelancers find using an accountant works best for their needs. Of course, paying an accountant is an additional expense – but it may be worth it in the long run if you are having a hard time keeping track of everything.
If you aren’t employed, then you will be responsible for filing your own taxes as a self-employed person. The forms for filing these taxes are different than those of employees, so make sure you know what form you need. For example, in the US, consultants or independent contractors report their income on Form 1099, while employees use Form W-2.
Any business has the ability to deduct costs and this includes freelancers. While it might seem like a hassle to collect all of your receipts and bills, many freelancers file taxes quarterly rather than yearly, so you can offload those records regularly.
Here are some of the freelance expenses that you can deduct when you file your taxes:
If you are billing international clients – different fees, tax rates, and regulations may apply if you receive payments via a bank account, wire transfer, and others. Receiving payments through all of these methods can make it more difficult to keep track of your income and expenditures. Setting up a global payment processing platform can streamline and centralize your transaction information, making it easier for you to file taxes when the time comes.
With Payoneer’s all-in-one payments solution, freelancers like you can easily manage and track your invoices, payment requests and even send reminders to your clients. When it comes time for filing those taxes, you’ll have everything in one consolidated place.
The global workforce is shifting to remote work very quickly and while there are plenty of benefits when working as a freelancer, you are indeed, responsible for filing your own taxes. While this may seem daunting, there are things to do to make this process easier.
If your taxes are more than you can handle on your own, you can seek guidance from a tax advisor or accountant experienced in freelance taxation. However, if you have been issuing and receiving payments on a unified payments platform like Payoneer, and are consistently keeping your records up to date, filing on your own may not be as hard as you think.
Go on and get a head start on your taxes today!