Freelancers: As a freelancer, you are often on the go and always looking for your next gig, we at Orca understand this and have worked with freelancers to not only plan out their financial future for the upcoming months and show them how many contracts they should take on or not take on. But we help them navigate the often very confusing topic of taxes as a freelancer.
Taxes as a FreeLancer
With technology, the ability to create your own business is endless whether you are a photographer, coder, model, graphic designer, tutor, etc… the opportunities are endless. You are a self-starter and a go-getter and live by your craft but you don’t often understand the financial and tax implication behind it.
You want to just concentrate on what you are good at and before you even realize it the money is coming in, fast and furious. Now the last thing you want to think about is taxes and cash flow plans, now that is where we at orca financial come in. Lets focus on some key tax strategy outlined below.
Lets start with a 1099, which is a tax document for miscellaneous income; this is where all of your wages for freelancing will be documented for the year, just like a w2 which you may be familiar with. But unlike a w2, no tax deductions will be taken upfront from your wages. The benefit of the 1099 is that you have a little bit more lead room when it comes to planning for your taxes as well as options.
One option is you can set up your own company, and absorb the 1099’s through that company, instead of your individual name. This allows for you as the individual to be paid by your company and elect taking the left over income from the company as the owner in profits. Therefore allowing for a different set of taxes that can be advantages. To do this you will set up a LLC or S-Corp and simply have the company’s that are paying you, pay your company, from there you will need to work with a financial professional to understand your potential cash flow and how best to set up your company. Finally, come tax time it is best to plan ahead again with your financial professional as well as a tax professional to understand the rules and regulation and the taxes associated with the strategy, often you can save money by putting in this effort and planning ahead.
Finally, some of you who are reading this article may be freelancing across the world, and are wondering if you have to pay taxes if you are not living inside the United States. The answer is yes, but it comes down to the amount of consecutive days that you are living outside of the country, this is where it gets complicated one and again should be discussed with your financial and tax professionals, but the number has changed a few times and currently stands around 345 days consecutively out of the country. With the proper planning we can help minimize the amount of taxes that you will have to pay, which means another round of beers on us!