Being self-employed or freelancing offers freedom and flexibility, but it also comes with unique tax responsibilities. Unlike traditional W-2 employees who have taxes withheld automatically, self-employed professionals must manage their own tax obligations. If you’re navigating taxes for the first time as a freelancer or small business owner, this guide will help you stay organized and avoid costly mistakes.
Understanding Self-Employment Tax
Self-employed individuals must pay self-employment tax, which covers Social Security and Medicare contributions. As both the employer and employee, you pay approximately 15.3% on your net earnings (compared to the 7.65% employees pay). This is in addition to federal and state income taxes.
For 2024, if your net earnings from self-employment are $400 or more, you must file Schedule SE and pay self-employment tax. Keep this in mind when planning your quarterly taxes.
Quarterly Estimated Tax Payments
Unlike W-2 employees, you can’t wait until April to pay your taxes. The IRS expects quarterly estimated tax payments on:
- April 15th (Q1)
- June 17th (Q2)
- September 16th (Q3)
- January 15th (Q4)
Missing these payments can result in penalties and interest. To calculate your quarterly payments, estimate your annual net income and divide by four. If your income is unpredictable, work with a tax professional to adjust payments as needed.
Track Every Expense
One of the biggest advantages of being self-employed is deducting legitimate business expenses. The more accurate your records, the lower your taxable income. Common deductible expenses include:
- Home office (square footage used exclusively for business)
- Equipment and supplies (computers, software, furniture)
- Vehicle expenses (mileage for business purposes, fuel, maintenance)
- Professional services (accounting, legal, consulting)
- Marketing and advertising (website, social media, business cards)
- Education and training (courses, conferences, certifications)
- Insurance (business liability, professional indemnity)
- Meals and entertainment (50% deductible for business purposes)
- Travel expenses (hotels, flights for business trips)
- Subscriptions and software (project management tools, design software, etc.)
Pro tip: Use accounting software or a spreadsheet to track expenses throughout the year. Don’t wait until tax time to gather receipts and invoices.
Keep Detailed Records
The IRS requires documentation to back up all deductions and income claims. Maintain:
- Income records – Invoices, receipts, bank statements showing all business income
- Expense receipts – Keep physical or digital copies of all receipts
- Mileage log – Track business-related driving with dates, destinations, and purposes
- Bank and credit card statements – These help verify both income and expenses
- Client contracts – Document terms and conditions of work
Store these records for at least three years in case of an audit.
Separate Business and Personal Finances
Open a business bank account and credit card separate from your personal accounts. This makes tracking income and expenses infinitely easier and provides clear documentation if audited. It also simplifies bookkeeping and shows the IRS that you take your business seriously.
Consider Retirement Contributions
As a self-employed individual, you can contribute to retirement accounts with significant tax advantages:
- SEP-IRA – Allows contributions up to 25% of net self-employment income (max $66,000 in 2024)
- Solo 401(k) – Offers higher contribution limits and loan options
- Simplified Employee Pension (SEP) – Good for those with variable income
These contributions reduce your taxable income while building your retirement savings.
Deduct Half Your Self-Employment Tax
You can deduct half of your self-employment tax as a business expense, which lowers your adjusted gross income. This is often overlooked but can provide meaningful tax savings.
When to File an Extension
If you’re still gathering documents or waiting on client invoices, file Form 4868 for an extension. This gives you until October 15th to file (though estimated taxes are still due by April 15th).
Get Professional Help
Tax preparation for self-employed individuals is complex. Between quarterly payments, deduction optimization, and compliance requirements, it’s easy to make expensive mistakes. Working with a tax professional ensures you’re taking advantage of every deduction, making accurate quarterly payments, and staying compliant with IRS requirements.
Simplify Your Self-Employment Taxes
At Moneta Tax LLC, we specialize in helping self-employed professionals, freelancers, and gig workers navigate their unique tax situations. We’ll help you track expenses, calculate quarterly payments, maximize deductions, and file accurate returns.
Ready to take the stress out of tax season? Schedule a free consultation with our team and let’s create a tax strategy that works for your business.
