Have you filed your freelance taxes yet? If not, it’s definitely time to gather your tax documentation, maximize deductions, and use these tips to avoid costly mistakes before the April 15 deadline. While there’s plenty of questionable tax advice out there, this list will help you avoid it as well as keep your tax records in tip-top shape should you receive an audit or other notice from the IRS. 

Keeping on top of your freelance taxes year-round is the key to avoiding unpleasant surprises at this time of year. So make your best effort to file on time and with the maximum potential tax savings for 2024 now. Doing so will set you up for a favorable tax situation for years to come. 

Last minute freelance tax-savings and deductions you may be eligible for:

1. Contributions to a SEP IRA or Solo 401(k):  

• Contributions can be made up to the tax filing deadline, reducing taxable income while planning for a financially sound retirement.  

2. Double-check your 1099 forms for accuracy:  

• The threshold for filing 1099-K forms is $5,000, so make sure that if you earned that much income across third-party payment platforms like Venmo, Etsy, or others that you claim it. Ensure that you confirm your records align and address discrepancies with issuers.  

3. Leverage the Qualified Business Income (QBI) deduction:  

• Deduct up to 20% of qualified business income, provided you meet income thresholds of $191,950 for single filers or $383,900 for married filing jointly in the 2024 tax year.

4.  Health insurance deductions:  

• Deduct 100% of premiums for yourself, your spouse, and dependents, reducing both income and self-employment taxes.  

5. Business vehicle expenses:  

• Deduct either the standard mileage rate (67 cents/mile for 2024) or actual expenses proportional to business use. Maintain detailed records.  

6. Home office deduction:  

There are two methods to calculate the home office deduction:

• Simplified Method:
  • Deduct $5 per square foot of your home office, up to a maximum of 300 square feet. This means the deduction is capped at $1,500. This method is straightforward and requires minimal documentation.
• Actual Expense Method:
  • Calculate the percentage of your home's square footage used exclusively for business. Then apply this percentage to actual expenses such as rent or mortgage, utilities, maintenance, and property taxes. This method requires detailed records of all related expenses. If you choose this method, be sure to maintain accurate expense records in case the IRS requests documentation.

File your freelance taxes proactively to avoid penalties and fines 

In addition to the last-minute freelance tax tips above, following these strategies will help you stay compliant and avoid unnecessary penalties or fines:

• Make quarterly estimated tax payments. The IRS expects freelancers to pay taxes on their income throughout the year. If you owe $1,000 or more in taxes annually, you're required to make quarterly estimated payments. Use Form 1040-ES to calculate these payments and ensure they're made by the due dates (April, June, September, and January).
• Avoid underpayment penalties. Make sure your quarterly payments or withholding cover at least 90% of your current tax liability or 100% of your prior year's tax liability (110% if your income was over $150,000). This safe harbor rule can help you avoid penalties for underpayment.
• File on time or request an extension. Missing the tax filing deadline can result in penalties. If you're not ready to file, apply for a six-month extension by April 15, 2025 as noted above. Remember, this is an extension to file, not to pay—estimate and pay what you believe you owe.
• Keep detailed and accurate tax records. Document all income, deductions and expenses meticulously. Having organized, thorough records will reduce errors on your tax return and help you substantiate deductions in case of an audit.
• Respond promptly to IRS notices. If you receive any correspondence from the IRS, address it quickly. Ignoring notices can lead to escalated penalties and interest charges. Remember, the IRS will never call, email, or text you. If you receive communication claiming to be from the IRS using these methods it is likely a scam. If you receive a mail notice, the best course of action is to contact a tax professional so you can understand what to do next. 

By staying proactive and informed about your tax obligations and proactive on your filings and record keeping, you can optimize any potential refund and avoid costly penalties. Investing time in proper tax planning and compliance will save you money and stress in the long run, keeping your focus where it should be. On growing your freelance business.