The 5 biggest tax challenges freelancers face

On the fun scale, the tax challenge falls somewhere between the cinnamon challenge and the ice bucket challenge. It’s unexpectedly difficult but for a good cause (your financial health).

Joking aside, being self-employed isn’t always a walk in the park. It’s easy to see the perks of being your own boss, but it’s just as easy to overlook the challenges when everything rides on your shoulders.

Like many freelancers, you simply want to do what you love and not worry about business functions like taxes. And who can blame you? Not even accountants jump for joy during tax season.

Taxes might not be the most exciting part of your business, but they are incredibly important. So here are the top five challenges we face, according to a 2018 survey, and how to overcome them.

1. Failing to file or pay

While tax season might be in your rearview mirror, for many, it shouldn’t be. New research from QuickBooks Self-Employed reveals 36 percent of freelancers and self-employed workers admit to not paying any taxes, and that’s a frightening reality.

Of those who admitted to not paying taxes, 17 percent claim they didn’t make enough, ten percent said it was because they had losses exceeding their profits, and nine percent didn’t give a reason.

To make the problem worse, 32 percent of those surveyed say they don’t report all their income. While many report most of their income, 13 percent say they report half their income or less.

The survey also showed 36 percent of freelancers have been audited by the IRS and nearly a third of those audited had errors. Not paying taxes or not reporting all your income is an incredibly big risk that can leave an even bigger pit in your stomach and your wallet.

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By failing to file, you face a failure-to-file penalty, and the longer you wait the more you will owe. This can be as much as 25 percent of the taxes you already owe.

But whatever you do, don’t let that penalty keep you from catching up. If you have missed a tax deadline, your best option is to file immediately and save yourself as much interest as you can on your payments.

2. Falling behind

If you are in the, “I got behind on my taxes” boat, you’re not alone. Fourteen percent of freelancers say they are currently behind on their taxes.

The good news is, four of the top five reasons for falling behind are preventable. Of the self-employed workers surveyed, most fall behind because they underestimate how much they actually need to pay.

This is followed by not being able to afford to pay taxes. Others get behind simply because they don’t know they need to pay, forgot to pay, or don’t know how to pay.

These struggles can be helped by setting reminders and deadlines for yourself so April 15 doesn’t take you by surprise. You can also start setting aside money after each job — as if you’re working for an employer who takes taxes out automatically — to help financially prepare throughout the year.

3. Paperwork

When asked what freelancers tend to struggle with most during tax season, their number oneanswer was filing forms correctly.

This is probably due, in part, to the fact that 31 percent of freelancers are still filing their taxes on paper rather than using an accountant or tax software.

You might think this is only an issue with older freelancers, but freelancers over the age of 55 are actually the most likely to use software to file their taxes. A third of freelancers between the ages of 18 and 24 are filing on paper.

Freelancers are used to having to do everything themselves so this shouldn’t come as a surprise to anyone. In this case, it never hurts to defer to someone with more expertise, especially when it comes to filing taxes correctly.

So minimize the struggle and the risks by joining the two-thirds of self-employed workers who use an accountant or tax software to file.

4. Utilize the digital age

Coming in a close second place for the top freelance tax struggles is keeping track of paperwork.

No one enjoys sorting through a shoebox full of receipts and invoices. The easiest way to keep track of all of your paperwork throughout the year is to digitize it. Luckily, moving all that paperwork to the cloud has never been easier.

There are tons of great apps to keep freelancers like you from going mad during tax season. They key with paperwork is to stay on top of it and develop a system for every expense, invoice, timesheet, and client.

Don’t make more work for yourself by putting it off. Set your systems now and stick to them.

5. Thinking “it won’t happen to me”

Many young freelancers might be thinking they aren’t going to be the target of an audit, and they have valid reasons for believing so. They have fewer years of experience freelancing so their likelihood of being audited should be lower.

Many of them might also be thinking they aren’t making enough to draw any attention, but the data tells a different story.  

According to the survey, freelancers between 18 and 24 years old are the most likely to be audited by the IRS. Nearly half of them (46 percent) have been audited. It’s even more shocking when you compare that to freelancers 55 and older — only 11 percent have ever been audited.

If you are a young freelancer, don’t make the mistake of thinking it won’t be you. Make sure to dot your i’s and cross your t’s when it comes to taxes.

Freelancers face a unique set of challenges when it comes to taxes. You have a great deal of pressure and responsibility to get things right because your livelihood depends on it.

You could be hit with major penalties and fees from the IRS if you’re audited, and if those penalties are big enough, it could even cost you valuable business.

But whether you forgot to pay taxes, underestimated their payments, or didn’t know they even needed to pay, it’s never too late to make things right.

Let me know your thoughts in the comments.

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About Patrick Adcock

Patrick Adcock is a marketing analyst at Intuit. He’s a lover of all things related to startups and coffee. When he’s not writing surveys and crunching numbers, he can be found running, hiking, or watching movies with a tub of Red Vines.


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