I know taxes are something most freelancers trip over at some level from the get-go, but I’m still embarrassed at how long it’s taken me to get comfortable.
As much as I loved international accounting in business school, freelance taxes just turned out to be a much different, and much more personal game. Eventually, I think I’ll be able to forgive my former self for the unnecessary stress and confusion. In the meantime, I want to talk to you about what works for me, and that’s paying my taxes every month.
On the 15th (ish) of each month, I’m on EFTPS.gov paying taxes like they’re a bill. I’ve tried saving up all year (not…a good idea) and making quarterly payments (meh) and for my peace of mind? This just works better. I think there are 3 reasons why…
It’s Less Mental Work
I really dislike deadlines. Adding four more (that I could potentially miss) for quarterly payments ? I’m good.
By paying monthly, I don’t have a reminder looming over my head of some big event in the future. It’s a habit (and you know I love good freelance habits) so it’s one less thing my mind has to actively carry around.
It Aligns With Other Bills
The personal finance world is built around employment and the steady paycheck. The way everything works, from our mortgages to automated savings options, to our cable bills goes right back to the employer.
I don’t live in that world anymore, but the rest of my bills do…so I just tossed my tax bill in there with them. Again…one less mental burden to deal with because pretty much nothing else in my financial obligation life runs on a quarterly basis.
I Don’t Get Attached To the Money
This is the big one, because freelance tax bills can be ugly. I remember even when I was employed those deductions were offensive. Now? Paying out around 35% of my income in taxes is just something I’ve learned to accept as a freelancer (and mind you, I don’t pay state taxes).
You know what’s worse though? Seeing 3-12x that amount sitting in an account and THEN paying it out to the government (especially one run by an aggressive, racist, mediocre businessman turned game show host…petty? IDC. It still stings more.)
I’ve been on a push to average $800 dollar days ($16K months) since running my numbers on this freelance calculator from Nation1099, and I’m sorry, but writing out checks that size 4 times a year would have me wanting to see a therapist.
It Keeps Me Real About My Income
My first couple of years or so, I really wasn’t being honest with myself about what I was making.
I knew I needed to be putting away about 30% for federal taxes, but I was “saving” it instead. Knowing that money was still somewhere in my name encouraged me to stay in denial about how much I was actually making. I was still pretending that that that $100/hr wasn’t really less than $70.
Having a system to pay monthly forces me to be honest and accept the reality of my freelance income which allows me to make better-informed strategic decisions.
So yeah. That’s how I handle it. I’m just rounding out my first year, so if anything goes wrong when I actually file for 2019, I’ll let you know. (2020 Update: It worked! I only ended up owing about $500 which I had saved just in case anyway, so it was completely painless. I’m moving to an S-corp in 2020 to get that number down even more, so I’ll be back to let you know how that goes on the tax end!)
P.S. If you’re not in the U.S. and have any tax tips for your country, drop them in the comments!