Freelance, Small Business, LLC: Should You Do Your Own Taxes?
Freelancing has a multitude of benefits — flexible schedule, command over your income, the ability to work almost anywhere — but ask anyone who’s worked as a contractor what the hardest part is and, just after exhaling a mammoth sigh, they’ll whisper cautiously: “Taxes.”
Oh, Taxes. For many regular, FTE workers, tax season can be kind of a pleasant experience; if H&R Block’s annual advertising campaigns are indicative of how the general population thinks of tax season, it’s an exciting time to “get your billions back.” But for the sole proprietors among us, the months between January and April are filled with anxiety. As our paperwork floods the mailbox, we try to do the mental math — just how much am I going to owe this year?
Because, despite one official United States tax form actually bearing the name “EZ,” filing taxes as a freelancer is anything but simple. Deductions (“are you deducting part of your rent? What about your internet bill?”, your well-intentioned friends will ask you), donations, the provisions for health care…the list of potential exemptions or additions is daunting. And while tax software like TurboTax do make the process easier and more efficient, the option to hire a professional still nags at quite a few freelancers and small business owners.
So should you do your own taxes? Before you decide to go it alone, ask yourself these questions:
Can you afford it? If you’ve had a hard time securing clients or getting paid, the idea of shelling out another few hundred dollars just to owe slightly less to the IRS might seem impossible, or at least ill-informed. But if you do have a little extra money, it’s definitely worth it to bring your shoebox of papers to a professional, who might be able to ensure you owe the least, and that you can come up with a smart plan for paying it all back.
How much are we talking? If you only freelance a little on the side, it might not be such a big deal to file your own taxes and just pay what you owe. But be realistic — sometimes, those bills are really, really big.
“I see a lot of people who are so excited, they freelanced their first year, they survived, and then they have a $5,000 tax bill and now they owe back taxes,” Sophia Bera, certified financial planner, told Forbes. If you’re looking at a mountain of debt, you’re going to want to bring in a professional.
How much do you know about taxes? Most of us know very little about the ins and outs of tax laws because, well, they’re complicated and it’s not our job. Unfortunately, that can make DIY tax filing extra difficult, because you might not be familiar with the exact definitions of the terms, which can lead to an audit or even accidental illegal practices.
Have you saved any money? You should have been. Estimates usually advise that freelancers sock away about 25-30% of their gross income to save for taxes, which is, yes, very difficult. If you haven’t saved enough, a tax professional can help you get on a quarterly payment plan, which will make it much easier for you to pay back the sum over time. Figuring that out on your own can be very tricky.
If you do decide to do your own taxes, there are plenty of resources you can check in with. The Freelancers Union has a lot of great information that can help you tackle the mountain of papers you’re undoubtedly facing. But, truth be told, if you’re new to this or you’re really going to have a lot of stuff to wade through and parse out, it might be in your best interest to just shell out for professional help.
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