Being self-employed certainly has its perks; for the most part, you get to dictate your own schedule and enjoy a large amount of independence. At the same time, there are some potential drawbacks to being your own boss. One of the biggest headaches you might encounter as you transition into a self-employed or freelancing career is that of figuring out your tax return. Rather than receiving a simple W-2 from an employer at the end of the year, you’ll be responsible for tracking and accurately reporting all your income.
If you’re lucky, you might receive 1099 forms from each of the companies or individuals from which you received payments throughout the year, but this is only required by the IRS if you were paid $600 or more from that entity in a single tax year.
And no matter how much or how little money you make during the tax year, you’ll be required to pay taxes on all your self-employment income. In addition to paying your “typical” Federal and state income taxes, you’ll also be subjected to self-employment taxes and, possibly, quarterly estimated payments.
With all the confusion that can come with taxes when you’re self-employed, there are some basics to keep in mind as you break into the world of self-employment that may save you time, stress, and money down the road.