Taxation can be a daunting topic for freelancers and entrepreneurs, but understanding the basics can save you time, money, and stress. Whether you’re a freelancer working from home or an entrepreneur running a small business, here’s what you need to know about taxes.
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1. Understanding Your Tax Obligations
As a freelancer or entrepreneur, you are responsible for paying taxes on your income. Here are the key points to consider:
Types of Taxes: You may be subject to federal income tax, self-employment tax, state income tax (if applicable), and possibly local taxes.
Estimated Taxes: Unlike employees who have taxes withheld from their paycheck, freelancers and entrepreneurs are generally required to make quarterly estimated tax payments to the IRS.
Self-Employment Tax: This tax covers Social Security and Medicare taxes for self-employed individuals. It’s typically 15.3% of your net earnings.
2. Keeping Track of Income and Expenses
Accurate record-keeping is essential for tax purposes. Here’s how to manage your income and expenses:
Income: Keep track of all income earned from clients or customers, including payments received via cash, check, or digital platforms.
Expenses: Maintain records of business-related expenses such as office supplies, equipment, travel, and utilities. These can be deducted from your taxable income.
