It is hard to beat the freedom and flexibility of freelancing and gig work. When you work for yourself, you can set your own hours, turn your home into an office and even ditch the daily commute.
All that is great, but there is one thing about freelancing that is much less pleasant. Compared to their corporate counterparts, self-employed individuals face an additional tax burden, an expense that takes many of them by surprise.
Note: If you end up falling behind on your taxes and the IRS or state claim you owe $10,000 or more, reach out to our tax resolution firm and we’ll schedule a free, no-obligation confidential consultation. Ecton Law Firm, PA www.IRSProblemSolving.com 803.771.9800 (SC) or 980.677.1099 (NC).
If you love the freedom of gig work but not the big tax bill, you need to think ahead. A little proactive planning can go a long way, so you can keep more of your hard-earned money in your pocket. Here are four smart strategies you can use to trim your tax liability and get more out of your freelancing and gig work.
#1. Fund a Health Savings Account
If you work for someone else, there is a good chance your boss picks up part of your health insurance costs, but freelancers and gig workers do not have that luxury. These self-employed individuals face additional challenges when it comes to health care, seeking affordable policies on the open market and saving money where they can.
One way the self-employed can save money and trim their tax bills is with a health savings account. Eligible individuals can contribute to a health savings account on a pre-tax basis, taking a serious tax deduction while making their health care more affordable. This tax savings can be a very big deal.
#2. Contribute to a Retirement Fund for the Self-Employed
Freelancers and gig workers need to look out for their own retirement, but there are plenty of options available. The annual contribution limits on retirement plans for the self-employed are among the most generous around, so you may be able to shelter a significant portion of your earnings from the tax man.
If you have a tax ID for your freelance business, you may be able to contribute to a solo 401(k). This plan works much the same as a traditional 401(k) plan, but the contribution limits could be even higher. Even if you do not have a tax ID, you can shelter part of your freelance or gig work income with a SEP-IRA or similar retirement plan.
#3. Take the Home Office Deduction
If you work out of your home, taking the home office deduction could save you a lot of money. If you are eligible for this valuable deduction, you could write off a portion of your property taxes and other home ownership costs, reducing your tax bill and keeping more money in your pocket.
There are specific rules regarding the home office deduction, so check with your tax preparer to make sure you qualify. If you can take the deduction, be sure to keep accurate records, and take photos of the office in your home.
#4. Push Income Into the Next Year
Freelance income can be notoriously unpredictable. One month is great, while the next is terrible. Yearly earnings can be just as variable, making tax planning difficult.
If you are having a particularly good year, you may be able to reduce your current tax bill by pushing some of that income into the following 12 months. When the end of the year approaches, delaying client invoices and moving income into the next year could save you money in the long run.
Once again, it is important to consult a tax professional before implementing this strategy. The IRS has established strict rules concerning income reporting, and you do not want to run afoul of the tax agency.
As a self-employed individual, you face some serious tax challenges, including the dreaded self-employment tax. That higher tax burden makes smart planning essential, and you can start that planning with the four tips listed above.
Owe Back Taxes and Need Tax Relief?
If you want an experienced tax resolution attorney who knows how to navigate the IRS maze, reach out to our firm and we’ll schedule a no-obligation confidential consultation to explain your options to permanently resolve your tax problem. Ecton Law Firm, PA www.IRSProblemSolving.com 803.771.9800 (SC) or 980.677.1099 (NC).