Don't Let the Tax Man Scare You

One of the basic facts of being in business for yourself, whether that’s the freelance writing business or some other business, is that you’re going to have to pay more in taxes. Now, you won’t always pay more in dollars, but you do pay more in terms of the percent of your income. You’re stuck paying a self-employment tax, as well as the full amount of Social Security (FICA) taxes.

In fact, it’s been argued that if regular employee payroll taxes were transparent, more Americans would be up in arms about the tax code. Businesses pay a great deal of your taxes that don’t even get shown on your paycheck.

This whole situation can make it a little bit scary for the new freelance writer. You might not know where to start in terms of setting up a plan to pay your taxes.

Now, while I’m not a tax professional or an accountant, it would seem to me there are a few things you can do to be prepared for when tax time rolls around:

• If your spouse works as an employee, consider having her change her deductions on her paycheck. She can increase the amount of withholding so that, come tax time, you’ve paid in more than you otherwise would have. The obvious downside to this is that you really don’t know how much you’re going to owe in taxes until you’ve been in business for a couple of years. Still, it’s somewhere to start.
• Consider paying quarterly taxes from the beginning. If your freelance writing business is gangbusters from the start, you probably should think about paying quarterly taxes right away. As I understand it the government doesn’t require you to do so until you have a tax year where you would not get a refund, however.
• Work with an accountant. Here’s where many freelancers fail. They don’t want to spend the money on accounting (or website design or marketing). They want to keep everything they earn, and in the process wind up earning less because of it. Hiring an accountant or bookkeeper helps make it so you won’t be surprised at tax time.
• Just ignore it. Now, I’m not suggesting this is a viable option, but it is the option that many freelancers start out with. The danger, of course, is that you’ll wind up with a huge tax bill that you can’t pay out of pocket. Still, if you’re the sole breadwinner in your family of five and you’re bringing in less than $40,000 a year from your freelance writing business, chances are pretty good you’re not going to owe any taxes anyways. (Just to be clear, I do NOT recommend this approach.)

Your freelance writing business taxes are going to be more complex than when you worked for someone else, and probably higher as well. Because of these facts you need to make sure you find a way to deal with taxes, ahead of time, that works for you.