As a freelancer or self-employed individual, staying on top of your taxes is essential. Unlike traditional employees, you don’t have an HR department handling withholdings for you. Instead, you’re responsible for tracking your income, managing deductions, and filing your taxes correctly.
This 2024 tax filing checklist covers the key steps to help you stay organized, maximize deductions, and ensure compliance when filing your taxes.
Key Takeaways:
- Track and Report All Income – Gather 1099s, record direct payments, and ensure you report all earnings accurately to avoid IRS penalties.
- Maximize Deductions to Reduce Taxes – Claim eligible business expenses like home office, travel, marketing, and professional fees to lower your taxable income.
- Stay Organized & Plan for Taxes – Use the Profit First Method to set aside taxes throughout the year and make quarterly estimated payments if required.
Keep Business and Personal Finances Separate
One of the most important steps for freelancers is keeping business and personal expenses separate. This makes tracking income, claiming deductions, and filing taxes much easier.
- Open a separate business bank account to manage freelance earnings.
- Use a business credit card for deductible expenses.
- Track all income and expenses using accounting software or a spreadsheet.
Track All Freelance Income
As a freelancer, you receive income from multiple sources, so it’s essential to track everything.
Gather all 1099 forms from clients and platforms:
- 1099-NEC: For freelance services provided to businesses.
- 1099-K: If you receive payments via third-party platforms like PayPal or Stripe (only issued if you meet the IRS reporting threshold).
- 1099-MISC: If you earn more than $10 in royalties, you may receive this from a record label, publishing company, or music licensing platform.
Include income not reported on 1099s, such as:
- Direct payments via Zelle, cash or cryptocurrency payments.
Report additional income sources, including:
- Savings account interest (Form 1099-INT).
- Investment income like dividends and capital gains (1099-DIV, 1099-B).
Review your invoices and payment records to ensure you accurately report all income. Even if you don’t receive a 1099 from a client or payment platform, the IRS still requires you to report those earnings on your tax return.
Maximize Your Deductions
Freelancers can lower their taxable income by deducting legitimate business expenses. Here are common tax deductions for self-employed individuals:
Office & Work-Related Expenses:
- Computer, software, internet or cell phone.
- Home office deduction (must be used exclusively for business).
Travel & Transportation
- Business-related mileage.
- Travel costs for client meetings or work trips (airfare, hotels, rental cars, taxis/Uber).
Marketing & Advertising:
- Website hosting and development.
- Online ads, business cards, branding.
Education & Professional Development:
- Online courses, certifications, conferences.
- Membership fees for professional organizations
- Music streaming subscriptions used for research and professional development.
Legal & Professional Fees:
- Accountants, lawyers, agents or managers.
- Business formation costs.
Retirement Contributions:
- SEP IRA, Solo 401(k), or Traditional IRA.
Insurance Premiums:
- Health Insurance – Self-employed individuals may qualify for a deduction on health insurance premiums if they meet IRS requirements.
- Liability Insurance – Coverage for accidents, damages, or legal claims related to performances, events, or your workspace.
- Instrument Insurance – Protection for instruments and equipment against theft, damage, or loss.
Self-Employment Tax Deduction:
- You can deduct 50% of self employment tax.
Interest Deductions:
- Business loan interest, mortgage interest (if applicable to a home office).
Stay on Top of Your Tax Obligations
Freelancers must handle their own tax payments, unlike traditional employees who have taxes automatically withheld. This means setting aside money for income tax and self-employment tax, which covers Social Security and Medicare. Since there’s no employer to split these costs, freelancers pay both the employer and employee portions—a total of 15.3% of net earnings.
To avoid penalties, it’s crucial to track income throughout the year and make estimated quarterly tax payments if you expect to owe $1,000 or more in federal taxes. Additionally, some states and cities, like Los Angeles and New York City, have extra tax requirements for freelancers, so be sure to check local tax laws to stay compliant.
Failing to pay your freelance tax obligations can lead to serious financial and legal consequences. The IRS and state tax agencies impose penalties, interest charges, and potential enforcement actions for unpaid taxes. Here’s what can happen:
Late Payment Penalties & Interest: If you don’t pay your estimated taxes or underpay, the IRS charges a failure-to-pay penalty of 0.5% per month on the unpaid amount, up to 25% of your total tax bill. Additionally, interest accrues daily on any unpaid balance.
Failure-to-File Penalty: If you miss the tax filing deadline, you could face a 5% penalty per month (up to 25% of your total tax due)—this is much steeper than the late payment penalty.
State & Local Tax Consequences: Some states impose additional penalties, and cities like Los Angeles and New York City may charge fines for failing to file business-related taxes.
IRS Collection Actions: If taxes remain unpaid, the IRS may take enforcement actions, including tax liens (a legal claim against your property), levies (seizing bank accounts or assets), or garnishing future income.
Difficulty Getting Loans & Credit: Unpaid taxes and IRS liens can appear on your credit report, making it harder to qualify for business loans, mortgages, or credit cards.
Consider Business Structure Options
For freelancers looking to protect their assets and optimize their taxes, forming a Limited Liability Company (LLC) can be a smart move. Unlike working as a sole proprietor, an LLC provides legal protection, tax flexibility, and added credibility for your business. Here’s what you need to know:
An LLC offers multiple tax options, allowing freelancers to choose the best structure for their situation.
Pass-Through Taxation (Default LLC Structure):
- Profits pass through to your personal tax return, avoiding corporate taxes.
- You pay only personal income tax and self-employment tax on earnings.
Electing S Corporation (S Corp) Status:
- You can reduce self-employment taxes by paying yourself a “reasonable salary” and taking additional earnings as distributions, which are not subject to self-employment tax (15.3%).
- This structure can save thousands of dollars in taxes for higher-earning freelancers.
LLC Tax Deductions:
- Business expenses such as equipment, travel, home office costs, and professional services remain tax-deductible.
- LLCs may also qualify for the 20% Qualified Business Income (QBI) deduction, lowering taxable income.
Know Your Tax Filing Requirements
When tax season arrives, freelancers need to file specific forms:
Form 1040 (U.S. Individual Income Tax Return): The main tax form used to report your total income, deductions, and tax liability. All other freelancer tax forms attach to Form 1040.
Schedule C (Profit or Loss from Business): Reports your business income and expenses.
Schedule SE (Self-Employment Tax): Calculates self-employment tax (15.3%) for Social Security & Medicare on net earnings.
Form 8829 (Home Office Deduction): If you use a dedicated home workspace.
Schedule B (Interest & Dividends): If you have investment income.
State & Local Tax Forms: Freelancers in certain states may have additional filing requirements. If you live or work in California or New York, you may need to file state tax returns and business-related tax forms.
Final Thoughts: Stay Organized & File On Time
Filing taxes as a freelancer doesn’t have to be stressful. By keeping accurate records, tracking income, and claiming eligible deductions, you can lower your tax bill and avoid last-minute headaches.
Pro Tip: Use the Profit First Method to stay financially prepared. This system helps you set aside a percentage of your earnings for taxes, profit, and expenses, so you’re never caught off guard.
At ICONAC, we specialize in helping freelancers and self-employed professionals navigate tax season with confidence. From handling 1099s to managing federal and state tax filings, business and personal returns, our team ensures you stay compliant and maximize your deductions. Need expert guidance? ICONAC is here to simplify the process so you can focus on growing your business.
