The Ultimate Guide to Estimated Taxes for Freelancers (2019)

Taxes can make even the savviest freelancer curl up into a ball and cry. But fear not, my fellow freelancing superstar, because with the following tips, resources, and tools, you will be ready to tackle your estimated taxes with confidence.

Where do I start?

As a member of the self-employed club, you'll want to start by automatically pulling 30% of your income aside for taxes to cover federal, state, and self-employment taxes.

Keep this in mind as you set your rates. You may charge $30/hour for your services, but you're really keeping $21/hour after taxes. Bonus: Enroll in my eCourse to help you get a handle on quarterly taxes, plan for retirement, and create a budget on a any income!

What's the deal with estimated taxes?

Being self-employed, you are responsible for sending Uncle Sam estimated quarterly taxes. That means paying taxes four times a year, not just once, so set your calendar reminders ASAP.

Keep in mind that if you don’t arrange to make these payments throughout the year, you could end up with a hefty fine at the end of the year because there will be late payment penalties on top of the taxes that you already owe.

How can I track my expenses?

As a freelancer, you'll want to keep a close eye on your income and expenses. After all, underreporting income can lead to penalties from the IRS. Fortunately, there are a plethora of great resources for tracking your finances. 

Wave Accounting: I've been a Wave user for years. It's a completely free, cloud-based program. You can send invoices, track payments and expenses, run reports, and view your monthly and yearly profits and losses. You can also accept payments from clients, but you will pay a small transaction fee. One of my favorite perks is their responsive customer support team.

Freshbooks: Many of my freelancing friends are Freshbook users. The benefit of this cloud based software is that in additional to tracking expenses and income, you can also track your time, send invoices, accept payments, have customers leave reviews and have any subcontractors track their time. After a 30-day free trial, you'll pay $9.99/month to manage your first 5 clients. 

Zoho Books: This cloud based software is a simple online accounting tool that covers all the basics: create and send invoices, track expenses, sync bank accounts, create reports and do accounting on the go using a mobile device. Though it's priced at $24.00/month, there are no limits to the number of users, transactions or capabilities. 

How can I improve my financial habits?

If you hail from the land of W9 employment and are used to taxes being automatically withdrawn from your paychecks, putting aside 30% of your income for self-employment taxes may be a hard habit to create. Worry not because there are a handful of apps on the market to help you do just that. 

Levee: Levee is a mobile app that helps the self-employed optimize tax savings. It looks for ways to reduce your taxes by identifying your tax deductions and tax bracket. It also lets you know when you're entering the next bracket. Although it comes with a monthly fee of $8-$19/month, you get a complimentary 30 days to give it a test run.

Keeper Tax: Keeper is a brand new app that just raised $1.6 million dollars to help freelancers like you and me track deductions with ease. Plus, they have a great blog that busts financial myths like the importance of keeping paper receipts. The app comes with a monthly fee of $10/month, but you get a complimentary 30 days to give it a test run.

[September 2019 update] I've been using Keeper tax for just over 4 months now and they've put literally thousand of dollars back in my pocket by tracking my expenses. Business travel and eCourses for my own business have never felt so good.

What about tax deductions? 

Being self-employed does have its benefits, like taking deductions, as long as the expenses are related to your business. Last year, the New York Times released some great tips about what types of expenses self-employed people typically deduct. For example,

"By working out of your home, you can take a home office deduction, as long as the space is used 'regularly and exclusively' for business purposes. If that’s the case, you can deduct $5 a square foot of dedicated office space, up to a maximum of $1,500." - NYT

In 2019, the IRS changed a lot of rules about what and how to apply deductions, so be sure to read up on what type of deductions you're eligible for and how to apply them to your taxes here.

Other items you may be able to deduct against your income are things like your laptop, phone, advertising costs, travel, etc. I recommend working with an accountant who can help you navigate things you can deduct as an independent contractor.

Even if your goal is to be able to file your taxes on your own, investing in an accountant in the beginning can help you learn how they file your expenses and what deductions you can claim. This can help you save more money in the long-run.

What's the best software to use for taxes?

One of my favorite sites, The Balance, recently highlighted their favorite online tools to help you submit your federal and state taxes online.

In this article, they breakdown features and pricing for the 7 best tax software programs on the market today.

Can I do my taxes directly through the IRS?

If you want to forego online software, or you want to be better informed about taxes, the IRS has free resources available on their website. Start here for a complete overview of where to start, what forms to file, and how to submit them. 

How do I find an accountant?

Finding an accountant is a lot like dating. You may have to kiss a lot of frogs before you find "the one." Referrals are often your best bet when getting started. Ask friends, family, and other VA's in your network if they use an accountant, and explain what services you're interested in.

I recently "met" (because we're all virtual) Amy Northard, CPA to creatives, work from home warriors, and digital nomads like. She's familiar with the VA industry, so check out her services to see if she's a good fit for you.

Other in-person services, like H&R block, may be an option for you if you have simple, straight-forward tax needs. A word of advice, though, when shopping around for an accountant: Be wary of those who promise you big refunds before even analyzing your financial situation. 

I want someone to walk me through financial literacy for freelancers. Ideas?

Yes indeed! I've created a 2-hour Udemy course packed with downloadable resources, a responsive income and expense tracking sheet, and tips on all things financial literacy. Check it out here: https://www.udemy.com/course/finance-tax-101-for-new-freelancers/

I'm a #BookWorm, do you have any reading recommendations?

I'm so glad you asked! I just finished reading "I Will Teach You To Be Rich" by Ramit Sethi. If you're looking for a sassy, no-nonsense approach to personal finances, start here. Sethi covers banking, saving, budgeting, investing, and the wealth-building ideas of personal entrepreneurship. 

Hopefully you feel a little more prepared to tackle your estimated taxes this year. As a VA and business owner, your best defense it so ensure that you're closely tracking all expenses for your business and are setting aside at least 30% of your income for taxes. Now breathe because you've got your finances under control!

About: I'm Erin, I've been a freelance Virtual Assistant since 2012. I'm on a mission to help other VA's maximize their income through tools and strategies (like utilizing LinkedIn and specializing in high-paying skills). Connect with me on LinkedIn or find me on YouTube and Twitter.