Tax Law Tips For Freelancers

Linkilaw Record Keeping & Taxes


Organising taxes can be a nightmare for many freelancers, but it’s one of the most important areas of your freelance business and one you don’t want to get wrong.


The last thing any freelancer needs is the tax man bearing down on his/her back because taxes were not reported properly. Filing and reporting taxes can seem like a daunting prospect for many freelancers, but it’s really not that hard at all.


In this post, we’re going to dish the dirt on the best tax filing and reporting tips for freelancers so you can prepare for your next annual tax report stress free.


Report All Income


It goes without saying but report ALL income. Not just some of it but all of it. Any income you earn as a freelancer must be reported when you file your annual tax reports. Every project you complete needs to be reported, no ifs or buts.


Honesty is always the best policy when filing your taxes if you want to avoid being audited.


You Can Charge VAT On Your Jobs


In the UK, there is the option to join the Flat Rate VAT Scheme, which means you pay less money on tax and save more. It’s a great win-win situation for freelancers.


The way it works is that you can charge your clients for VAT, usually at around 20%. If you do this, it’s likely you only need to pay 10% back to the HMRC. Therefore, you can actually end up paying less tax and saving money.

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Claim Your Deductions


One major positive about being a self-employed freelancer is that you can claim many work-based deductions as part of your tax reporting. Think of anything you need to work. Did you buy a laptop for your work? Do you pay for a monthly Internet connection? Are there any software programs you use that are required to complete your work?


There are many things that you can claim as work-related expenses. In some countries, you can even claim advertising costs as a deductible expense. Even things like office expenses such as pens, stationery, printing costs, and much more can be claimed. If you want to clarify the exact things you can claim, it’s imperative you contact a legal expert or accountant that specialises in small business accounting and tax reporting.




Know What Taxes You’re Meant To Pay


Find out in advance what your tax rate will be. This will vary according to the jurisdiction and laws of each country, but generally tax rates for self-employed individuals are determined by how much they earn per year. It also depends on what business structure they’re operating under. For example, most freelancers will operate as a sole proprietorship, but if you’re making a lot of money then it may be financially better to set up a company.


Setting up a company will give you limited liability plus it will also offer tax benefits that you don’t get as a sole proprietor.


Some countries will also charge a certain rate for specific areas. For example, in the United States there is a compulsory self-employment tax that covers Social Security and Medicare taxes. Again, check with an accountant in your country so you know what specific taxes you’re required to pay and what the rates will be.


Keep Records Of All Expenses And Income


Unless you keep detailed records of all your expenses and monthly income, you’re going to have a tough time doing your annual tax reporting. The easiest way to track your income each month is to use an accounting software, and there are plenty of those to choose from. The other scenario if you don’t want to invest in accounting software is to use a simple Excel spreadsheet that details income.


Secondly, make sure you make copies of all your invoices sent to clients and invoices paid to you. It’s important you note in your invoice what the project was in addition to the total because it’s much easier to report come tax time.


Also, if you want to claim work-related expenses on your taxes, you’ll need to keep detailed receipts of any purchases you make.


Get Professional Help


Maybe you want to bootstrap everything and do it on your own, but the facts are that it’s so much easier to file your annual tax reports when you hire a professional. They’ll be able to tell you exactly what you need to know and more importantly, work everything out for you from how much tax you should pay back and any expenses you can claim.


Prepare In Advance


You should already have consulted a professional about your taxes before you started freelancing or at least before the end of your first year. They can tell you how much you’ll be expected to pay in taxes based on how much you earn.


Some countries tends to have a tax free threshold whereby you don’t pay any tax up until a certain amount. There will generally be a tax bracket for how much income you earn, so if you find out in advance what percentage of your income will be taxed then you can prepare for it.


This is by far the best policy to avoid trouble with the tax man. Find out what percentage of your income will be taxed and then you can start saving for it each month. This is far easier than trying to scrounge all the money together you’ll owe in taxes once you’ve filed your annual income report.




Hopefully now you can see that filing and reporting taxes doesn’t have to be that difficult.


As long as you keep detailed records of your income, receipts of expenses, and you report everything properly according to tax laws in your country, then you’ll be fine. It’s important that you consult a professional as individual circumstances and laws vary in each country.

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Get in touch with us today if there is anything about your legal tax obligations as a freelancer that you’re unsure about.