If I Freelance, How Much Will I Pay In Taxes?

What about quarterly taxes? 

Most freelancers will also have to pay quarterly taxes - estimated payments based on what you anticipate owing for the year, generally paid evenly on a quarterly basis (although, some states, such as California, split up the percentages a bit differently). If you anticipate owing at least $1,000 in taxes over the course of the year, you should be making quarterly estimated payments to avoid a penalty at the end of the year. 

State and federal income taxes 

Your quarterly tax payments will include both self-employment tax and income tax. As a freelancer, you are responsible for paying income tax on your earnings. The rate you pay will depend on the amount you make for the year and the state you live in. For example, Florida, South Dakota, and Tennessee are all states without income tax. 

When you’re just starting out, estimating what you will owe for the year can be tricky. Even after you’re established, your income can fluctuate significantly from year to year. However, you can use a tax calculator to get an estimate thorughout the year or downlod the Ruby Money App to fully automate your tax payments

Keeping track of deductions 

In addition to your state and income level, your expenses will also impact what you owe in taxes.

The good news is that many of the expenses you incur to run your business are likely to be deemed deductible, as long as they are “ordinary and necessary.” This means things that would be seen as normal in your line of work to spend money on. For example, if you are a marketer, your expenses may include:

• SEO and analytics tools 
• Bookkeeping software 
• Social media management software 
• Zoom licensing
• Office rentals or the use of a specific area of your home for business 
• Equipment, such as a computer, camera, or lighting 
• Mileage spent driving to and from meetings with clients 
• Advertising to promote your business
• Professional services - accountants and lawyers 
• Subscriptions  - trade publications, news outlets
• Education & training 

The more you are able to track expenses, the easier they will be to document and deduct. Don't forget that you can also deduct your SEP-IRA contributions.

Can I manage my taxes on my own? 

Whether you enlist help to manage your taxes should depend on your abilities and your interest in investing the time to work on them. If you'd rather be doing something else with your time, or you're losing money spending time on taxes that could be replaced with income-earning activities, bringing in an accountant can be a good idea. Having someone on the outside look at your business can also give you a different perspective. They may have ideas as you move forward to lessen your tax obligations, or remind you of deductions you didn't think about. 

Whether you work with an accountant or DIY your taxes, having a system for putting away what you owe can help you stay organized and on top of your finances from quarter to quarter. Ruby Money's platform allows you to allocate funds to taxes and retirement as your invoices come in, and can serve as the perfect complement, whether you're taking on your taxes yourself or bringing on help. 

‍