Freelance Income Tax (with Calculator)

It sounds fantastic freelancing, especially when you are doing what you love. You set your working hours, decide the amount you collect for each project and also make the decision of the place to work from among other factors. The autonomy and flexibility you enjoy as a freelancer can be exhilarating, but there is much more to being self-employed in reality. But let’s face some of the facts, you are self-employed, and that means you have to set your budget and report your income to IRS at the end of the year. 

You’ve got no employer who will deduct taxes directly from your paycheck and settle internal revenue service on your behalf. It means you have to track your income and budget an estimated amount to service your tax responsibilities. You probably need a freelance income tax calculator and a guide on how to file your tax. Below are tactics you can employ. 

Using the freelance income tax calculator

It’s okay if you are feeling apathy about calculating your freelances taxes; you are probably not alone in that situation. That math can be a lot puzzling for a lot of people, and there are often concerns about the perfect computation of taxes. 

Thankfully, online tax calculators can be of help, and they are usually simple to use. Beyond the help of a freelance income tax calculator, there are software that can compute your taxes. But if you want to figure out the information yourself, below are the data required by tax calculators.

1. IRS classifies freelancers' income as self-employment income. So, learn how to compute your self-employment income as shown on IRS Schedule C.
2. Multiply the net income from step 1 by 92.35%. The result is your self-employment net earnings.
3. Social security tax is the lesser of either:

• 12.4% of your self-employment net earnings of step 2 or
• The social security tax ceiling ($128,400 for 2018)

4. Basic medicare tax is calculated by multiplying net self-employment earning of step 2 by 2.9%.
5. Calculate any additional medicare tax by due for the categories below:

• Multiply any net earnings from freelance income over $200,000  from step 2 above by 0.9% of you are single.
• Multiply any net earnings from freelance income over $250,000 from step 2 above by 0.9% if you are married and filing jointly (125,000 if married and you decide to pay separately.)

Understanding estimated taxes as a freelancer

Since freelancers are classified as self-employed individuals, it is recommended that freelancers file estimated taxes quarterly. More so, since income may not be regular considering the nature of freelancing work, estimated taxes would sort out income tax, alternative minimum tax and, self-employment tax issues. Ensure that you pay the right amount of incremental taxes promptly as calculated by a freelance income tax calculator if you use one. That will exonerate you from penalties of paying late or underpaying your taxes. Form 1040-ES is used for filing estimated taxes for individuals. The following are computation needed for the form:

• Expected adjusted gross income
• Taxes for the year
• Estimated taxable income
• Credits for the year
• Deductions for the year

One of the ways to compute estimated taxes is to analyze your last year’s income. The big question is, what happens if your estimated taxes for the year are far too high or low?  Do not panic if that happens as you can always adjust the figures on the form 1040-ES in the next quarter if you pay incrementally. But take note of the date since a late payment might incur a penalty. So, ensure you factor that when you have to carry over underpaid taxes to another quarter.