Six Tax Tips for Freelancers and the Self-Employed

Blog Posts

As the so-called “gig economy” has grown, so have the number of people who earn their living as freelancers, sole proprietors and independent contractors. According to a recent study published by the IRS, the number of individuals who reported self-employment income on their tax returns increased by 2.7 million between 2006 and 2016, rising from 9.8% to 10.7% of all workers.

If you’re self-employed — whether as a freelancer, consultant, online seller or any other type of gig — you could potentially save money on taxes by making some shrewd moves. Here are six tax tips for the self-employed:

  1. Keep track of your income. If you earned more than $600 this year from any single client, they should send you an IRS Form 1099-Misc early next year stating how much money they paid you. However, if you don’t receive this form from a client, this doesn’t mean the income you earned from this client isn’t taxable.

Some businesses aren’t aware of the requirement to send contractors a 1099 form, while others simply ignore the requirement. Therefore, it’s important to keep careful records of all self-employment income throughout the year instead of relying on 1099 forms so you can accurately report your income at tax time.

  1. Make estimated tax payments on time. As a contractor, income taxes aren’t withheld from your pay like they are from the pay of full-time (or W2) employees. Instead, you are likely required to pay estimated income taxes throughout the year.

Estimated tax payments are due on a quarterly basis — specifically, on the 15th of April, June, September and January in 2020. IRS Form 104-ES can help you determine how much tax is due, or most tax software program also help with the calculation. You must pay at least 90% of the amount of taxes you owe for the year or 100% of the amount of taxes you paid last year in quarterly estimated payments.

  1. Remember your Social Security tax obligations. When you’re self-employed, you have to pay the full 12.4% in Social Security taxes. When you work for an employer, you only have to pay half of this amount — your employers pays the rest.

However, you can deduct half of the Social Security taxes you pay, or 6.2%. Note that Social Security taxes are only due on the first $132,900 of self-employed income in 2019. This will rise to $137,700 in 2020.

  1. Maximize self-employment deductions. One of the benefits of being self-employed is the ability to deduct many expenses you incur in running your business. These include expenses for travel, meals and entertainment that are incurred as part of your normal business activities, up to certain limits.

The most valuable deduction for many self-employed people is the home office deduction. To claim this deduction, your home must be used regularly and exclusively for business and it must be your principal place of business. You can use the simplified method for calculating the home office deduction by multiplying the allowable square footage of your office space (up to 300 square feet) by $5. So if your home office is 300 square feet, your deduction would be $1,500.

  1. Maximize the tax benefits of retirement plans. As a self-employed individual, you may be able to make much larger tax-deductible contributions to retirement plans than you could as an employee. For example, the annual contribution limit for an IRA next year is just $6,000 if you’re under age 50, or $19,500 for a 401(k) if you’re under age 50. But it’s $57,000 or 25% of net earnings from your business for a SEP-IRA.

You have until your 2019 tax-filing deadline (which is April 15, 2020, unless you file for an extension) to establish and fund a SEP-IRA for tax year 2019.

  1. See if you qualify for the QBI deduction. The Tax Cuts and Jobs Act created a valuable new deduction for many self-employed individuals whose businesses are structured as pass-through entities (such as S corps, partnerships, LLCs and sole proprietorships). If your business qualifies, you can deduct 20% of your qualified business income, or QBI, on your federal income tax return.

Keep in mind that if your taxable income this year exceeds $160,700 (if you’re single) or $321,400 (if you’re married and file jointly), your QBI deduction will be limited. You could potentially lower your taxable income in order to maximize your deduction by making tax-deductible charitable donations or retirement plan contributions before the end of this year.

Be sure to consult with a CPA or professional tax advisor for more details about your specific tax situation.


The commentary is limited to the dissemination of general information pertaining to Frontier Wealth Management, LLC's ("Frontier") investment advisory services. This information should not be used or construed as an offer to sell, a solicitation of an offer to buy or a recommendation for any security, market sector or investment strategy. There is no guarantee that the information supplied is accurate or complete. Frontier is not responsible for any errors or omissions, and provides no warranties with regards to the results obtained from the use of the information. Nothing in this document is intended to provide any legal, accounting or tax advice and Frontier does not provide such advice. This information is subject to change without notice and should not be construed as a recommendation or investment advice. You should consult an attorney, accountant or tax professional regarding your specific legal or tax situation.

How can I get started?

contact us