How much money should i make to file taxes

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Tax season is upon us, with the deadline only a couple of months away. And that deadline will be here before you know it. Getting all of your tax information prepared as early as possible meaning start now if you haven’t is important. But depending on the money you make and how you plan on filing your taxes, there’s another important thing to figure out: do you even make enough money to require filing taxes? It can be a worthwhile question if you’re not making that much money.

Why you should file anyway

Freelancing—it sounds like a wonderful way to make a living. You set your own hours and you decide on the amount of money you’re willing to accept for your work. The autonomy and freedom can be exhilarating, particularly when you’re freelancing doing something you love. Now take a deep breath and consider the reality: You’re self-employed, so you must budget for taxes as a freelancer. Self-employment comes with a whole host of unique tax responsibilities and issues, including budgeting for the taxes you’re going to owe the Internal Revenue Service at the end of the year. There’s no employer anymore to conveniently lift money from your paychecks and send it off to the IRS on your behalf.

How to file

Freelancing—it sounds like a wonderful way to make a living. You set your own hours and you decide on the amount of money you’re willing to accept for your work. The autonomy and freedom can be exhilarating, particularly when you’re freelancing doing something you love. Now take a deep breath and consider the reality: You’re self-employed, so you maie budget for taxes as a freelancer. Self-employment comes with a whole host of unique tax responsibilities and issues, including budgeting for the taxes you’re going to owe the Internal Revenue Service at the end of the year.

There’s no employer anymore to conveniently lift money from your paychecks and send it off to the IRS on your behalf. It can be challenging to calculate how much you’re going to owe in estimated taxes as the year goes along, particularly if you’re not sure how much you’ll be earning—a common dilemma for those who are just starting.

But there are a few ways to do it. Here are some tactics you might use to budget for taxes as a freelancer and sould things you’ll want to keep in mind.

First, understand that «saving» is something of a misnomer. Actually, and ideally, the IRS will be saving for you until tax timebecause you should be sending in estimated quarterly payments every three months.

You’re effectively paying your taxes as you go, just as you would if your employer were withholding the money out of each of your paychecks. These payments are due by certain dates because the IRS really wants to be paid as you receive income, or as reasonably close to it as possible.

For the tax year, haxes dates mske. Yes, that sounds like a lot. Here’s the thing: You’re not just paying income tax. You must also pay self-employment tax, and your budget must cover. Self-employment tax mony your FICA taxes—the Medicare and Social Security that your employer would normally withhold from your paychecks in addition to income tax.

When you’re employed, you pay how much money should i make to file taxes and your employer is obligated to pay the other half. You are your employer when you’re a self-employed freelancer. This means that you have to foot the whole bill yourself, and this is why it’s known as the self-employment tax. It works out to a pretty significant percentage: As an employed taxpayer, you would only have to pay half these amounts.

Roughly half that percentage is attributable to your self-employment tax. You’ll complete Schedule C at tax time, which will allow you subtract your business expenses from your overall freelancing income to arrive at your leftover, taxable income.

Keep track of your deductible expenses throughout the year, such as office supplies, travel expensesmileage driven for business purposes, and perhaps maintaining a home office. You’ll have to estimate if this is your first year as a freelancer, and it’s typically safer to estimate low rather than high.

Then deduct these expenses from your anticipated income and base the percentage you’re going to budget for sholud on the balance. Remember to save your receipts so that you’ll be able to prove your expenses should the IRS ever ask about. Now that you know how much you need to budget, you must decide how you’re going to set this money aside. It takes discipline to save in advance and send in those l payments. After all, you have to pay for groceries, heat, and the roof over your head.

That being the case, it’s usually easiest to set aside some percentage of each payment you receive as a freelancer. This also saves you from having to guess how much you think you might earn over the course of the next few months. You’ll just shuld aside a percentage of each particular payment you receive when you receive it. The easiest way to execute this is to set up a savings account that you’ve earmarked for taxes.

Link that savings account to the checking account in which you deposit your freelance income, then automatically transfer a portion of that money to the savings account each time you make a deposit. Only use the above tactic if you tend to have ample extra money in your account at the end of each month. This is the amount you’ll remit to the IRS each quarter. It might not be as difficult as it sounds if this isn’t your first year freelancing.

Each time you sign up with a new client, that client probably asked you to complete a W-9 with all your identifying tax information, such as your Social Security number or Tax ID number. Then, after the close of the year, you should have received MISC forms reporting the money each client paid you. You can use these to form a good estimate of what you’ll earn in the upcoming year.

Has anything changed? Have you parted ways with one of those clients or are you doing more work for another? You can use the s as a base, then adjust upward or downward to come up with a realistic idea of how much each will probably pay you this year. Allow yourself plenty of wiggle room in your yaxes and a fairly large cash cushion for this approach. Most freelancers prefer the first option, which is more of a save-as-you-go plan.

It demands more management but less discipline, and it works within the realities of your day-to-day budget. If you’re particularly flush one month, go ahead and pay your taxes early. The IRS won’t mind. You don’t have to let the money sit in your savings account waiting for September 16 to roll around, and it could avert disaster if you have a bad month or two and you come up empty when the due date arrives.

You can look back at the month behind you, taxrs what you earned, and pay monthly. Budgeting Basics. By Paula Pant. April 15, June 17, September 16, January 15, Article Table of Contents Skip to section Expand. What Percentage of Your Pay to Save. Calculating Your Income. Saving Money by Percentage.

An Alternate Way to Save. Estimate Your Earnings. You Can Always Pay Early. Continue Reading.

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