Even if you are a freelancer, that doesn’t mean you don’t have to pay taxes. On the contrary, the entire process might seem more complicated when you don’t have a stable job. That is because your income comes from various places. Sure, you are your own boss, but that means you also have to do your own taxes and pay the self-employment tax. Confused about what that is? Today, we are going to tell you everything you need to know about the self-employment tax when you are a freelancer. Let’s have a look!
What Is the Self-Employment Tax?
The self-employment tax covers the Medicare and Social Security taxes that everyone has to pay. However, people who are hired somewhere only have to pay 7.65 percent. People who run their own business or are independent contractors have to pay no less than an additional 7.65 percent. That is because they also have to pay what a person employing them would have normally given. So someone working as a freelancer will spend a grand total of 15.30 percent of his or her net self-employment income for taxes.
Do All Freelancers Have to Pay the Self-Employment Tax?
Yes, as long as the people you work for on different projects pay you using a 1099-MISC form each. The more traditional type of employee receives a W2 form from his or her employer. So if this is not your case, then you will have to pay the self-employment tax. However, remember that you only have to pay this tax if your net earnings are of at least $400.
Can I Get Some Tax Deductions?
Since you are a freelancer, you will probably have to spend more than a traditional employee. Which means that you will also get some tax deductions that a normal employee cannot get. However, you have to keep in mind that the only tax deductions you can get have to be ordinary and necessary for your business. That means that if you want to get a deduction for something that you would normally own even without being a freelancer, you will most likely be unable to do so.
You can get tax deductions for lodging, office expenses, or food that relates to your business. You might even get some materials and equipment that you need. For instance, since you normally work from home as a freelancer, you can get the home office deduction. This covers things like rent and all sorts of utilities. However, you have to have an actual office space at home. Don’t expect to be able to use another room for work and pretend it is an office.
Another important thing to remember is that if you want to learn something new and it has something to do with the field you work in, you might be able to apply for a tax deduction. That way, you can take classes or get certifications related to your business confident that you can get a tax deduction.
The self-employment tax that you have to pay as a freelancer and all the strings that come attached to it might look scary. However, if you are responsible about handling your finances, you won’t have any issues dealing with it.
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