Learn more

Login

Get started

Sign me up

It takes some freelancers YEARS to develop an effective invoicing workflow and a strong strategy for tax season.


To help you beat the learning curve, we&#8217;ve teamed up with Ruby Money on the best practices for improving your cash flow throughout the year and acing your taxes.
<h1>Do I Have to Pay Taxes as a Freelancer?</h1>


What you’ll learn:
<ul>
<li>How much you have to make to file taxes as a freelancer</li>
<li>Tips for invoicing and bill pay to make filing easier</li>
<li>What your tax obligations are as a freelancer</li>
</ul>


<ul>
<li style="list-style-type: none;"></li>
</ul>


<ul>
<li style="list-style-type: none;"></li>
</ul>



As a freelancer, you can chart your path, make your own decisions, and possibly earn more income than traditional jobs offer. But freelancers have unique tax obligations.


Unlike salaried employees, freelancers aren’t having tax money withheld from their paychecks throughout the year. That means it’s entirely your responsibility to understand how much you owe the IRS, adhere to rules regarding payment, and meet important deadlines. For example, if you plan to owe more than $1,000 in taxes for the year as a freelancer, you should probably be making quarterly payments rather than waiting to pay in a lump sum during tax season.


Use this guide to get a sense of how to calculate your taxes, set aside money as you invoice clients, and pay your taxes as a freelancer.


<h2>How much do I need to make to pay taxes as a freelancer?</h2>


If you’re a freelancer, the IRS will likely require that you pay a self-employment tax on your income. That includes freelancers who provide services in exchange for payment, such as writers, graphic designers, web developers, and consultants. And the first thing you need to understand is the income threshold for paying taxes.


The IRS requires that self-employed individuals pay taxes when their net earnings total $400 or more. To calculate your net earnings, you&#8217;ll need to subtract any expenses related to running your business from the total income you made for the year.


Gross Income Amount &#8211; Cost of Business Expenses = Net Earnings


For example, let&#8217;s say you made $450 in gross income from freelance work in one tax year. If your net income is $400 or less after subtracting the expenses and deductions for which you qualify, you wouldn’t be required to pay taxes on that $450 in gross income since it falls under the net earning threshold of $400.


It&#8217;s important to note that everyone who earns gross income must file their federal and (if applicable) state taxes, regardless of the income amount. Whether you are required to pay taxes on that income depends on your net earnings after expenses and deductions.


Certain states may require additional payment on freelance income earned, but the policies and tax rates differ from <a href="https://www.rubymoney.us/blog/state-taxes-online.">state to state</a>.


<h2>Understanding how your business structure impacts your taxes</h2>


One major factor that can impact how much you owe in taxes as a freelancer is the structure of your business. The <a href="https://www.irs.gov/businesses/small-businesses-self-employed/self-employed-individuals-tax-center#:~:text=As%20a%20self%2Demployed%20individual,as%20well%20as%20income%20tax.">government considers you to be “self-employed”</a> if you do business as a sole proprietor, an independent contractor, a member of a partnership, or a gig worker.


Your business structure determines which income tax return form you have to file, and in some cases, makes you liable for additional tax costs depending on where you live. For example, LLCs registered and doing business in California are subject to an $800 annual LLC tax—even if they don’t bring in any money that year! If you operate as a sole proprietor, you and your business are considered one single entity by the IRS and you will report your earnings and losses on your personal tax return.


<h2>Self-employment tax vs. income tax</h2>


Most salaried employees pay federal income taxes on their earnings. Freelancers typically have to pay federal self-employment tax as well as income tax on the profits they earn.


The self-employment tax rate is 15.3% (12.4% goes toward Social Security and 2.9% goes toward Medicare, benefits that you’re still entitled to as a freelancer and that you must pay into). If you were working as a W-2 employee, funds to cover this tax obligation would be withheld from your wages—and it would be a smaller obligation on your part, because your employer would also contribute a portion of the payment. As a freelancer, you’re footing the cost of the entire tax yourself.


On top of federal self-employment and income taxes, freelancers may need to pay state income taxes depending on where they live. Freelancers have to report all income and expenses to the IRS on their annual tax returns. If you work with multiple clients, you’ll receive a <a href="https://turbotax.intuit.com/tax-tips/irs-tax-forms/what-is-an-irs-1099-form/L3NxSPMUe">1099</a> form from each of them as your primary tax documentation for the contract. You’re responsible for calculating how much self-employment tax you owe and filing any quarterly estimated tax payments based on these calculations.


<h2>Quarterly taxes as a freelancer</h2>


Estimated quarterly taxes must be paid to the IRS if you expect to owe $1,000+ in taxes for the year. Quarterly payments are based on estimates, so use IRS Form 1040-ES to determine how much you’ll owe in taxes each quarter after deductions and credits are applied, and try to be accurate in your calculations. If you underestimate how much you owe, you’ll need to pay the remaining balance when filing your annual tax return. If you drastically miss the mark, the IRS can fine you.


Fortunately, several deductions available for freelancers can help reduce your tax bill. For example, the home office deduction allows freelancers to write off expenses for the business use of their home. It’s important to keep detailed records of your expenses throughout the year to take full advantage of any deductions available to you.


<h2>Preparing to file taxes</h2>


Throughout the year, there are certain things freelancers can do to make tax filing and payment easier. Track all your invoices, bills, expenses, and sales. An organized system for keeping track of what’s going in and coming out of your business will help you make better estimates on your quarterly tax payments.


A great way to do this is by using a platform like Hopscotch that allows you to manage invoices and payments from your clients easily. It also integrates with Quickbooks, which will simplify invoicing and accounting tasks.


When it comes to tax season, research possible deductions – there may be certain expenses that you can deduct to reduce the amount of taxes owed. Double-check the accuracy of all your financial records to ensure nothing is amiss. Also, if you choose not to pay throughout the year, at least set aside money as you earn it so that you don’t run into any issues when it comes time to pay.


By following these steps and properly managing your finances throughout the year, tax season should be much easier for freelancers.


<h2>Work with professionals to get it right</h2>


Working with a tax professional or an expert can help ensure your taxes get done right and avoid fines or penalties due to mistakes.


A resource like <a href="https://www.rubymoney.us/">Ruby Money</a> can help fulfill freelance workers&#8217; and independent contractors&#8217; unique needs regarding filing taxes.


The best approach to taxes as a freelancer or self-employed professional is proactivity. Having a plan in place and understanding the nuances of taxes at the state and federal levels will give you great peace of mind throughout the year.
A great plan is best executed through good organization, and platforms like <a href="https://gohopscotch.com/">Hopscotch</a> can help you stay organized throughout the year. Ready to set up an account? It’s free and only takes a few minutes to get started.

The simple guide to paying taxes as a freelancer

Ruby-Money-x-Hopscotch-Webinar.jpg

LI_ Product Marketing—Existing Feature (1)

The best factoring alternative for your clients

Tax season and cash flow: How small businesses can navigate tax-time strain

Accounting for factoring receivables: How invoice and AR factoring affects your taxes

Future of B2B payments

6 fintech leaders to celebrate this Black History Month

Profile 18

What census and SBA data reveal about lending discrimination in 2025

Hopscotch improves visibility on cash flow with built in payment forecasting

LI_ Blog Content (03A) (2)

What are the primary cash flow forecasting methods?

Hopscotch makes predicting and calculating cash flow easier

pexels-tima-miroshnichenko-6694543

How to forecast cash flow in 7 easy steps

Frame

Ultra-simple cash flow forecasting template

Getting visibility on cash flow with Hopscotch

What is a cash flow forecast? An essential business finance tool

How to charge interest on overdue invoices

A template for late fees and interest on overdue invoice charges

Group 13571

How to follow up on overdue invoices: Complete guide with templates

Use Hopscotch to attach terms about late fees on overdue invoices before you send

Group 13570

Rules about late fees and interest on overdue invoice charges

Hopscotch helps businesses collect unpaid invoices

How to collect unpaid invoices: A step-by-step guide

Small business owner uses Hopscotch to avoid overdue invoices and get paid on time 

Smart strategies for managing overdue invoices

Common cashflow problems and how to solve them

How do companies account for receivables that are factored?

Invoicing

How factoring accounts receivable can benefit small businesses

Screenshot 2024-12-06 at 1.32.01 PM

AR financing vs. factoring

Why you need recurring payments for your small business (1)

How does invoice factoring work?

Small business owners review financial documents and project cash flow for upcoming quarter, deciding to use accounts receivable financing on some invoices. 

getty-images-kskXUynXSCE-unsplash

What is accounts receivable factoring? Your guide to financial flexibility

Small teams use invoicing software with early pay features to control cash flow 

Blog Content 8

Should you use invoicing software with early payment processing?

White label invoicing payment screen with custom brand details

A quick guide to white-label invoicing software for small businesses

Team learns about easy invoicing

How to choose white label invoicing software

Hopscotch Flow and small business owner

Is white label invoicing software free?

Hopscotch joins Avalara

Hopscotch joins Avalara!

Profile 17

Is invoice factoring a tax deduction?

Get paid instantly with Hopscotch Flow, an alternative to traditional invoice factoring

Invoice factoring vs bank loan

Instant cash flow that protects your client relationships

Is invoice factoring confidential?

Easy cash flow and instant payments for small businesses 

Easy cash flow and instant invoicing from Hopscotch

Is invoice factoring a loan?

Hopscotch helps businesses get paid fast and fee-free

Cash flow management for small business

4 cash flow management strategies for small businesses

Invoice factoring fees: how much & how fast do they add up?

Cash flow for small business

Navigating cash flow for small businesses

LI_ Small Business Community Content (4)

B2B ACH payments for small businesses

Frame (3)

What documents do you need for invoice factoring?

Life at Hopscotch

Will invoice factoring affect my client relationships?

Guide to invoicing (1)

Starter invoice template for self-employed freelancers and consultants

New agency’s guide to collecting unpaid invoices

A small business owner using Hopscotch Flow to easily get paid on time. 

Hopscotch Flow (2)

Traditional invoice factoring vs Hopscotch Flow

Secrets of Success | The Small Business Playbook

Elevating the payment experience for service-based businesses

Introducing "The Ultimate Stack"

The 5-step guide to managing customer payments

Common cashflow problems and how to solve them (2)

A guide to ACH payments for small business owners

Tailwind + Hopscotch

desola-lanre-ologun-IgUR1iX0mqM-unsplash

How trustworthy is Hopscotch?

Willa vs Hopscotch: What you need to know

Choosing the best invoicing software for freelancers

End Card

The ultimate guide to six-figure freelancing

End Card (1)

The best pricing strategies for freelancers

End Card (2)

Getting paid on time as a freelancer

Invoicing-for-graphic-designers.png

Invoicing software and automations for design companies

Invoicing tips and tricks for web developers

Invoicing software and automations for web developers

How-to-pay-yourself.jpg

How to pay yourself as a small business owner

Future-of-B2B-payments.png

Building the future of B2B payments with Reed Switzer and Thomas Rein

Fixed-vs-variable-costs.jpg

The difference between fixed and variable costs

Difference-between-invoices-bills-and-receipts.png

The difference between invoices, bills, and receipts

How-accepting-credit-card-payments-can-help-you-grow-your-business.png

How accepting credit card payments can help your business grow

Every-resource-you-need.png

Every resource you need to know as a freelancer

6-must-have-email-templates-for-freelancers.jpg

6 email templates for freelancers to earn more money and get paid faster

TankTalks-Podcast-Transcript.png

How failing at your first startup is the best education for young entrepreneurs with Reed Switzer