First-Time Self-Employed Taxpayers: How to File Your Taxes4 min read
The first couple months of the year can be a stressful time for freelancers. The holidays are over, new projects are starting… and $#!%—it’s time to start tax prep. Well, for most of us, it’s time to start procrastinating tax prep.
As AND CO’s Chief Operator, my job is essentially to live, breathe, eat and sleep in the mindset of a freelancer, 24 hours a day, seven days a week. That means constantly researching new information and best practices that will empower our community of self-employed hustlers to be more efficient. After all, the test of a true hustler is being able to do more with less.
Around this time of year, we get a lot of folks asking about tax prep. Naturally, many of these questions come from up-and-coming freelancers who are new to the game. But really, I’m talking to any of you who find yourselves looking at a list of tax prep services with bewilderment, thinking, “Where. To. Begin!?”
The good news is for you is that I’ve done a lot of the heavy lifting, so you wouldn’t have to—just scroll down to the bottom of this post to see what I mean. But FIRST, here’s my No. 1 piece of advice for those of you who are filing taxes as freelancer, self-employed-person or whatever you kids are calling yourselves these days:
Talk to a human being—in person or via an online agent.
Related: A Guide to Filing Your Taxes in 2019
Why you should always use a tax professional to file your first self-employment tax
As a self-employed person, either in a full-time or part-time capacity, there are tax laws (and sometimes benefits) that apply to you. Of course you know this, but freelancers tend to be people who like to DIY every aspect of their lives—after all, that’s why you flipped the proverbial bird to The Man and sailed off on your own career adventure.
This same penchant for self-sufficiency, while a tremendous asset to you as a freelancer, could actually hurt you come April 15.
Simply put, self-employment taxes are filed by people who work for themselves. This obligation reflects the very same thing as the Social Security and Medicare taxes that a typical employer would take out of the salaries of its employees. As someone who works for yourself, this responsibility is now your own.
To begin you’ll need a Schedule SE, otherwise known as a Form 1040. (See, it’s already getting a bit complicated, isn’t it?)
You’ll also need a Social Security card and an individual taxpayer identification number.
If your net earnings from self-employment are $400 or more, you’ll be subject to SECA tax of 15.3 percent (12.4 percent Social Security tax plus 2.9 percent Medicare tax)—but note: the Small Business Jobs Act will allow you to deduct a percentage of your income for health insurance purposes.
Curious as to what the approximate total of your taxes could be for 2019? Try out our nifty Self-Employment Tax Calculator.
Filing self-employment #taxes for the first time? Talk to a human being. Seriously, just do it. Click To Tweet
If you lean on a human being (or proxy expert) to help you, you get the added value of education on top of tax prep services.
By way of having someone walk through your situation and what the right steps to take are, you can take notes and potentially use that to take on a more turnkey solution come next tax season. It’s the whole “teach a man to fish” analogy. When the time comes for you meet with a tax specialist, be sure to take note of things like:
- What are the commonly missed deductions that would provide me with a bigger refund?
- Do I or does my family qualify for an Earned Income Tax Credit (EITC)?
- Do I really need to pay quarterly taxes?
- The importance of W9 forms and 1099 forms
Scheduling time to chat with a specialist will ultimately help you avoid procrastination.
Chances are, if you have to go to a brick-and-mortar location, you won’t wait until mid-April to do so.
Take the first few weeks of the year to compile your paperwork, receipts, etc. and begin researching the tax prep offerings of providers in your area. Once you identify a resource, schedule time in your calendar to have those conversations well ahead of April.
Selecting an accountant can feel like a daunting process. If you’re going outside of the “chain” options, begin by asking self-employed friends or colleagues if they have a recommendation. Word of mouth is one of the quickest and easiest ways to identify a proven partner. Want to expand your shortlist? Consult Yelp or the American Institute of Certified Public Accountants.
In the meantime, you can start your prep work today with AND CO’s Self-Employment Tax Calculator. Plug in three values and you’ll be well on your way to understanding your likely employment tax obligations for 2019.