The autonomy of independent work. Since you are in charge, you may choose your clients, tasks, and working hours. Additionally, you are exclusively responsible for paying your own taxes throughout the year and at tax time, but you can get help from Tennessee CPAs.
Knowing how much and when to pay taxes is entirely up to you as a freelancer. However, keep calm. With the right information, planning, and assistance from a seasoned tax preparer or accountant, you may continue to enjoy your independence without worrying about an IRS fine.
You are a freelancer, and the IRS is aware of this.
According to the IRS, you are considered self-employed if you receive $400 or more in annual freelancing revenue from a single company. As a result, this income must be reported on your annual tax return. Therefore, in addition to paying your personal income taxes, you must additionally pay a self-employment tax of 15.3 percent to match the Social Security and Medicare taxes that an employer would withhold from your paycheck.
Because you fill out a W-9 form when each customer employs you, the IRS will know you are a freelancer. Your name, address, and tax identification number (TIN) are requested on this form and reported to the IRS. Every client who paid you $600 or more during the year will send you a 1099-MISC instead of a W-2 at the beginning of the year.
Tax time has arrived!
It is your responsibility to set aside money from each cheque to pay federal, state, local, and self-employment taxes—and to pay them on time—since taxes are not withheld from the payments you receive from your clients. Each quarter, due in January, April, June, and September, you must pay estimated taxes if you anticipate owing more than $1,000 in taxes for the year. If your quarterly taxes are underpaid, you must make up the difference when you file your tax return on April 15. You could face a higher fine if you underpay too much.
You can get assistance with the computations and estimations using these two forms, which are available at irs.gov:
- Your projected annual income and the corresponding estimated quarterly taxes can both be calculated with the aid of Form 1040-ES.
- The self-employment tax you will include with your ordinary income tax on your 1040 is calculated using Schedule SE.
To prevent personal and corporate finances from blending, it is a good idea to open separate savings and bank accounts for your firm. Calculate the amount of each paycheck that should be set aside for taxes. Move the necessary funds into the account you designated for taxes as soon as your paycheck posts to your account. Do not touch that money again until you pay your quarterly or yearly taxes.