When it comes to paying taxes, being self-employed can come with unique challenges.
Being self-employed can offer exciting job opportunities and incredible flexibility. And with a bit of preparation, tax season can become another area to feel confident and in control of your freelance success.
Here are a few smart tax tips that can help you keep more of what you earn.
Set Aside Money for Taxes
When you’re self-employed, rather than a standard W-2 employee, taxes aren’t withheld from your payments. It’s your job to set aside enough cash throughout the year to cover what you owe come tax time. And, if you expect to owe at least $1,000 in federal taxes, you’ll need to pay quarterly estimated taxes, due on April 15, June 15, September 15, and January 15 in order to avoid surprises and penalties.
To make this process easier, freelancers in the entertainment industry should consider opening a dedicated savings account for taxes, aiming to deposit 25 to 30% of your earnings. You can transfer a portion of your income into this account each time you receive a payment so you’ve got the funds ready at tax time. Some professionals prefer using a separate business checking account or credit card to simplify tracking and keep work-related expenses separated from personal spending.
Filing Taxes
Self-employed taxes may feel new at first, but once you get the hang of it, the process becomes second nature. Here’s how it works:
- You should receive a Form 1099-NEC (Nonemployee Compensation) in January from each of your clients that lists your total earnings for the year
- You report self-employment earnings using Schedule C, which attaches to your regular Form 1040
- You’ll subtract your expenses from your earnings to get your taxable income and enter this figure on Form 1040 so you can calculate how much you owe for the Social Security and Medicare components of your self-employment taxes
Maximize Your Deductions
The best way to shrink your tax bill is by tracking and leveraging expenses related to your work. Deductible expenses include home office costs, travel, supplies, and equipment. For example, if you drive your car for business, deducting those miles can make a big difference.
The key here is good record-keeping. Receipts are your best friend—they provide detailed evidence of your spending so you’re prepared should you ever be audited. You want your receipts to be as detailed as possible, including the expense’s date, place, amount, and essential nature.
Even if you don’t have physical receipts, notes on bank or credit card statements can help paint a clear picture of your business spending.
Don’t Miss Out on Health and Retirement Savings Deductions
Health insurance premiums and retirement contributions offer freelancers meaningful tax breaks. If you purchase health and dental coverage independently (and aren’t eligible through a spouse or other employer plan), your premiums are usually deductible as an adjustment to your income.
Retirement contributions—such as those made to a Solo 401(k), SEP IRA, or SIMPLE IRA—directly lower your taxable income, giving you immediate savings at tax time. It’s a smart way to reduce today’s tax bill while investing in your future.
With regular management (the same as with your personal budget), and the right accounts, you can make your taxes as painless as possible and keep focusing on the flexibility and freedom entertainment professionals enjoy.
