Taxes are mandatory financial charges you pay to the government. As a freelancer, understanding your tax obligations is a fundamental part of running your business.
What is Taxes?
Taxes are compulsory contributions you make to fund public services and government operations. For freelancers, this primarily includes income tax on your profits and self-employment tax, which covers your Social Security and Medicare contributions.
Why is this important?
Managing taxes is critical for your financial health and legal compliance. Unlike traditional employees, taxes aren't withheld from your pay, so you are responsible for calculating, saving, and paying them yourself to avoid penalties and interest.
How does it work?
You typically pay estimated taxes quarterly to the IRS and your state. You report your annual income and expenses on Schedule C with your personal tax return. Keeping accurate records of all business income and deductible expenses is essential for this process.
Pros and cons
The main advantage is access to business deductions, lowering your taxable income. The significant downside is the administrative burden and the need for disciplined saving, as you must set aside a portion of every payment for your tax bill.
Conclusion
Taxes are a non-negotiable part of freelancing. By planning for them from the start, keeping good records, and making timely payments, you can avoid stress and ensure your business remains compliant and financially sound.
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