3 Ways to Save for Taxes When Working as a Freelancer

A freelancer is a person who works for themselves. They aren’t part of a company and earn directly from clients. This is in contrast to a company employee who typically receives a regular monthly salary; commissions and other forms of payment may pay a freelancer.

The difference between the two is that while employees are paid by their employers and work fixed hours for the company, freelancers are self-employed and can work on their own schedule.

They do not receive any benefits from their employers, but they can pay their bills and support themselves through their own efforts if they earn enough.

If you’re a freelancer, you may understand the struggle of managing your money. You need to learn how to budget between maintaining personal savings and addressing your needs. But one of the biggest hassles might be your government contributions, specifically your taxes. 

Handling Income Taxes as a Freelancer

The process of income tax filing is a hassle, especially when the system is so complex and hard to understand. It is not only the complexity of the system that makes it difficult but also the fact that each country has different tax rules and regulations.

For example: US state sales tax is different from other countries in terms of rate and deductions.

Generally speaking, income tax is a percentage of the total income that you have earned. You first need to check if you’re in a tax bracket or not to compute for it. Afterward, you’ll only have to pay a percentage of your total income as tax for that particular year.

Despite these complexities, have you ever heard or thought about tax savings? Taxes don’t always cause trouble, so here are three ways freelancers can minimize and save their taxes.

3 Ways to Save For Taxes

Saving for taxes may sound odd to the regular employee, but many freelancers practice it. Keep reading the approaches below to help you get started saving for taxes. 

1. Separate your business bank account and credit card

If you have a business bank account, governments typically consider transactions related to that account as business expenses.

This process makes it easier to deduct from your income when it’s time to pay taxes. Likewise, it’s easier to track which expenses are business-related and which aren’t if you have a personal and business credit card.

Additionally, creating an e-card can help you manage your business expenses more effectively by keeping track of all your receipts and online invoices in one place.

In addition to making it easier for you to file your taxes, keeping these two things separate can also help you avoid late fees or other penalties that might result from mixing personal and business finances. When you see all your expenses, you can estimate how large your tax will be and if you should stop spending.

2. Understand deductions

You can deduct certain expenses necessary for your business, such as travel or a new tool or device critical for your job.

Always keep track of these expenses so that you’ll remember to declare and deduct them while filing your tax return. This step will reduce how much tax you’ll need to pay and help maintain your personal savings.

3. Estimate quarterly taxes in advance

When you estimate your quarterly taxes in advance, you’ll know roughly how much money you need to set aside each month so that your quarterly payments won’t surprise you later.

If you wait too long to figure out your estimated tax bill, how much money is due might surprise you. This is a great budgeting practice to help you peacefully manage and budget your money. 

Save More, Worry Less

Taxes are not an easy thing to deal with, but it is possible to work around them and allow you to save more. As freelancers, money comes mostly from commissions, so naturally, you want to save as much as possible.

Practicing good habits and maintaining a sustainable savings account may be minor to some, but they consistently provide immense value.

If you actively monitor your income, spending, and quarterly taxes, you’ll know how much you’ll need to pay once tax season swings around.