Tax Tip Tuesday: Guide for Freelancers

Freelancing gives you the freedom to set your own schedule, choose your clients, and work from anywhere — but with that freedom comes a new level of responsibility when it comes to taxes. Here’s a guide to help you understand more, stress less, and stay compliant as a U.S.-based freelancer.

1. Track Everything From Day One

Freelance income is reported on Schedule C (Form 1040), and the IRS expects you to report all income, even if you didn’t get a Form 1099-NEC. Use a bookkeeping system or app that categorizes income and expenses automatically — QuickBooks, Xero, or even a well-organized spreadsheet can work. Tip: Keep receipts, invoices, and bank statements organized — digital copies are acceptable as long as they’re legible.

2. Separate Your Business and Personal Finances — Non-Negotiable!

This is where most freelancers trip up. Mixing business and personal transactions makes tax prep messy, invites IRS scrutiny, and can cause you to miss deductions. Action Step: Open a dedicated checking account (and ideally a credit card) for business use only. Run every business transaction — income and expenses — through this account. Pay yourself from this account so you can clearly see your “take-home” pay. Why It Matters: This one move makes bookkeeping cleaner, helps prove you’re running a legitimate business (not a hobby), and can even protect you legally if you later form an LLC.

3. Don’t Forget Quarterly Estimated Taxes

As a freelancer, no one is withholding taxes from your payments — you’re responsible for paying income tax and self-employment tax (Social Security + Medicare). Use Form 1040-ES to calculate and pay quarterly estimated taxes. Missing these payments can lead to penalties.

Safe harbor tip: To avoid underpayment penalties, pay at least 100% of last year’s total tax liability (110% if your AGI was over $150,000), spread over four equal payments.

4. Deduct Your Business Expenses (Legally!)

Common deductions include: home office expenses, mileage, office supplies, software, and professional dues. Deduct only what is ordinary and necessary for your business — this is straight from IRC §162.

5. Consider an S-Corp Once Profits Grow

If your net income is consistently over $50k–$70k, talk to a tax professional about whether electing S-Corp status could save you money on self-employment tax.

6. Save for Retirement (and Your Future Self)

Freelancers have access to excellent retirement savings options like SEP IRAs and Solo 401(k)s, which can reduce taxable income and build long-term wealth.

7. Stay Compliant With State and Local Rules

Some states (like California) have extra filing requirements for LLCs or sole proprietors. Check your state’s tax agency for business license or franchise tax obligations.

8. Hire Help Before You’re Overwhelmed

A tax professional can help with quarterly tax projections, entity planning, and maximizing deductions. Hiring a bookkeeper keeps your numbers clean so you can focus on your work.

Freelancing can be empowering — as long as you stay proactive about taxes. Start by separating your money, and you’ll be ahead of the pack when tax season rolls around. Have questions? Reach out to info@mkhstaxgroup.com.