Keep Detailed Records of Income and Expenses

Track all your earnings and business-related expenses throughout the year. Use accounting software or a spreadsheet to categorize and document your income, such as payments from clients or platforms like Uber or Fiverr.

Understand Self-Employment Taxes

Freelancers and gig workers are responsible for paying both income and self-employment taxes. This includes Social Security and Medicare taxes, which are typically withheld by an employer in traditional jobs but are your responsibility as a self-employed individual.

Deduct Business Expenses

Take advantage of tax deductions available to you. This can include home office expenses, travel costs, business supplies, and even part of your phone and internet bills if used for work. Keep receipts and records to back up your deductions.

Pay Quarterly Estimated Taxes

As a freelancer or gig worker, you’re expected to pay estimated taxes quarterly to avoid penalties. Use IRS Form 1040-ES to calculate and submit your payments, which helps you avoid a large tax bill at year-end.

Set Aside Money for Taxes

Since taxes are not automatically deducted, set aside a portion of your income (typically 25-30%) for tax payments. This ensures you have enough saved up when your quarterly or annual tax bill is due.

Track Mileage for Tax Deductions

If you drive for work (e.g., for Uber or freelance deliveries), you can deduct mileage. Keep a log of all work-related travel and use the IRS mileage rates to calculate your deduction.

Maximize Retirement Contributions

Consider contributing to a retirement plan like a SEP IRA or solo 401(k) to reduce your taxable income. These retirement accounts allow for larger contribution limits than traditional IRAs, helping you save for the future while lowering your tax bill.

Hire a Tax Professional

If managing your taxes feels overwhelming, consider hiring a tax professional who specializes in self-employment. They can help you navigate complex tax laws, maximize deductions, and ensure you're compliant with tax regulations.

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