What You Need to Know About Freelancing and Taxes
Have you recently gone self-employed? It’s not surprising given the Coronavirus crisis and the decline of the traditional working pattern. It can be an amazing opportunity and can feel so liberating after years of a conventional 9-5.
But what about freelancing and taxes? For an employee used to filing their taxes through their employer and getting a payslip at the end of the month, it can seem daunting.
Once you know all about freelance work and taxes, it’s quite straight forward, and you don’t need to worry.
Here’s everything you need to know.
You must declare everything to the IRS or any other tax authorities you deal with. This must be the golden rule that drives everything you do. Even if you are contemplating hiding some of your income or not declaring it, don’t do it.
If you were an employer in a past life then you’ll know how irritating things like the new overtime rule are but you’ll have some idea of what to expect and that you have to declare every penny to the IRS.
The penalties for hiding money from the IRS are far more severe than any gain you might make from keeping your assets a secret.
Remember as an American citizen you must also pay taxes on any income you made whilst abroad as well as local taxes.
Do Your Research
The people who pay less tax are the ones that understand the system and what is legal and what is not.
The more you study the rules set by the IRS the less likely you are to mess up and face a fine. Equally, you’re more likely to discover a loophole or a way to legally reduce your tax bill. You will also be able to answer questions on issues like can you expense phone and internet for freelance on taxes?
Sometimes it’s not just about reducing your tax bill but arranging your taxes in a way that works for you. One example is making your pay stubs: you can make check stubs here if you need to declare your income to anyone.
Decide on the Best Country to File
Do you have an American passport and American citizenship? It might sound crazy but if you don’t spend much time in the U.S and work remotely you might want to consider trading in your American passport for a European one or getting dual citizenship with a second passport. Perhaps you have a wife or one of you is eligible for a passport from a different country but you have never looked into it.
Even within the U.S, there are tax havens you can take advantage of like South Dakota.
As well as the perks this will grant you in terms of unrestricted entry to Schengen Zone to live and work, it will also give you the freedom to file taxes in whatever country you wish and whatever country has the most beneficial tax arrangements for you, without having to declare to the IRS.
Be sure to understand the difference between self-employed and freelance in tax in the country you pay your taxes in and look into each country’s specific laws.
Freelancing and Taxes Are Easy
Once you get the hang of freelancing and taxes you start to realize it’s straight-forward. There is a lot of mysticism around it but there are some steps you can take towards reducing the stress.
Spend a few days researching freelance and employed tax so you understand what the law says about it all. The more you understand about the system the easier it will be to leverage the system to meet your needs.
If you are interested in reading more about freelancing and taxes be sure to check out the rest of our site.