If you’re new to freelancing, there are a few key tax items you need to know about (assuming you’re based in the U.S.). This is by no means a complete list, but these are the basics.
Do not commingle personal and business income and expenses
If you commingle income and expenses, you can bring business liability into your personal life by piercing the corporate veil. Beyond this, commingling business and personal items can present tax complications if you ever get audited.
To avoid this, get separate banking accounts for your business.
Keep detail records of all income and expenses
Keeping detailed records will save many headaches when it comes to paying your quarterly taxes and filing your yearly tax return. Using time tracking/invoicing apps like Harvest or Blinksale will help on the income side of things. Using an accounting app (Hint – Tallisto) will help with tracking income and expenses as well as generating income statement and income and expense breakdown reports. Beyond recording all your transactions, you should save receipts for all expenses and any other documentation that supports your income and expenses.
Pay Estimated Quarterly Taxes
Four times a year, you’re expected to pay estimated quarterly taxes for both state and federal. Besides the government wanting your tax dollars, it also saves you from a big tax bill (and potential penalties) at the end of each year.
File a Schedule C of the IRS form 1040
If you’re just starting out on your own or not doing all of the following, spend an hour on Google and research these 4 items. Hopefully you’ll never face any legal or tax problems with your business, but if you do, you’ll be prepared.
DISCLAIMER: The advice and recommendations presented here should not be considered an authority for any legal or tax matter. If you have questions, you should consult with your lawyer and/or accountant.