Do you know what’s great about freelancing? Pretty much everything. Dressing up and commuting to work is for the most part not applicable, you get to work at your own pace, in your comfort zone, and you can tune in to your favorite music as loud as you prefer without dreading being judged or joked at from your co-workers.

Know what’s the biggest evil about freelancing? Managing and paying your taxes. Navigating the tax system when you’re a freelancer can be a nightmare. Wonder why?

How Do Taxes Work for Freelancers?

As a regular employee, you probably didn’t have to worry about your taxes. As a typical employee, when you get your paycheck at the end of the month your taxes are withheld that means you pay them with every paycheck you get. But as a freelancer, you have to do your taxes yourself as they don’t get deducted when you get the paycheck for your latest project.

Since the gig economy is growing, freelancers are constituting more and more of the workforce. However, the traditional system isn’t exactly designed to suit your style of working. Freelancers must adapt themselves to this framework that taxes freelancers unnecessarily even though they do not get as much advantage from the social security net.

How to Deal with this Nightmare?

Hiring a personal accountant and paying their expenses can be the needed step to help you guide through this tiring tax ordeal but it is not ideal for newbies or for people who do not earn too much. As a freelancer, you need to be highly organized and keep track of all of your finances including the work expenses and personal expenses.

Know What You Are Stepping into!

Freelancers not only have to tax on income but also on self-employment that is an additional tax that the traditional employee doesn’t have to deal with but unfortunately, freelancers have to. It is an extra expense that is intended to cover the Social Security and Healthcare sums that would typically be withheld by a conventional employer.

Keep Separate Accounts

One piece of advice that experts give is having two separate bank accounts, one that manages solely your business and the other to manage your personal spending. Keeping two accounts is beneficial, it streamlines your record keeping. You can easily keep track of your salary for the year and any costs you spent on your business without having to separate what you spent on groceries or medical expenses.

Calculate Your Tax

Because taxes aren’t getting deducted every time you receive a paycheck doesn’t mean you don’t need to pay them. Freelancers have to pay estimated tax payments around four times a year. It is very important that you keep proper tracks of your finances and calculate your tax payments properly. Because the whole tax system is so complicated, freelancers not only pay their taxes but quite often they have to pay the penalties as well for miscalculating or missing their tax payments. Which is why it’s important that as soon as you get into freelancing you get a hold of an accountant or learn how to manage your finances yourself.

A Daunting Task!

Taxes for any entrepreneur can be a daunting task as well as for freelancers because in a way they have to pay more in taxes than traditional employees. Tax day is a nightmare but the nightmare can be dealt with by taking proper precautionary measures. One of the most important would be to stay alert and keep a track of your finances. You cannot afford to be irresponsible here. Stay on track with your finances and learn how to manage them and tax day won’t be that big of a problem for you. Freelancing is an amazing system of employment and if it’s your dream job don’t let taxes get the better of you.

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