Taxes

Taxes can feel overwhelming — especially when you're new to freelancing and nobody handed you a roadmap. The good news: the more you understand upfront, the less stressful tax season gets. Let's break it down.

What taxes will you pay as a freelancer?

The federal self-employment tax rate is 15.3%. That breaks down into 12.4% for Social Security and 2.9% for Medicare. When you had an employer, they covered half of this for you. Now that you're self-employed, you're covering the full amount yourself.

On top of that, you'll owe state income taxes, which vary depending on where you live.

You're unlikely to owe the full combined total on every dollar you earn — deductions reduce your taxable income — but it's smart to set aside 25–30% of every payment you receive to cover both federal and state taxes. This is also why we factored 30% into your baseline rate calculation. You want that money ready when it's time to file.

Start saving immediately

Every time you get paid — no matter the amount — set aside 25–30% of that payment for taxes. You might not need all of it come April, but you'll be grateful you saved it. Tax bills have a way of sneaking up on people who aren't keeping up with this.

Separate your finances

I recommend keeping a business checking account that all client payments flow into. Then, think of paying yourself like a paycheck:

→ Subtract 25–30% from each payment for taxes → Subtract any business expenses (subscriptions, tools, software, etc.) → Transfer the rest to your personal checking account

Keeping your business and personal money separate makes bookkeeping way easier — and it's basically non-negotiable once you're earning consistently.

Business structures: Sole Proprietor vs. LLC

Most freelancers start as either a sole proprietor or an LLC. Here's what you need to know about each.

Sole Proprietor

A sole proprietorship is an informal, unincorporated business structure that isn't legally separate from you as its owner. You're entitled to 100% of the profit — and responsible for 100% of the risk.

You don't need to do anything to set up a sole proprietorship. You file taxes under your own Social Security number, or you can get an EIN (Employer Identification Number) — basically a Social Security number for your business — for free from the IRS.

I recommend getting an EIN even as a sole proprietor. Here's why:

→ It protects you from identity theft (you use it instead of your SSN on W-9 forms) → It's required if you ever hire W-2 employees, open a solo 401(k), or convert to an LLC → It gives you the option to file for bankruptcy if you ever need to

Sole proprietors file taxes on Schedule C. If you want to give your business a formal name, you can file for a DBA (doing business as).

LLC

An LLC (Limited Liability Company) combines the liability protection of a corporation with the simplicity of a sole proprietorship. The key benefit: your personal assets are protected if your business is sued or defaults on debt.

State filing fees for LLCs range from about $40–$500 depending on your state.

For tax purposes, a single-member LLC is taxed very similarly to a sole proprietorship by default. The main difference comes if you elect S-Corp status, which can reduce self-employment taxes once you're earning more — but that's a more advanced move that involves stricter recordkeeping and paying yourself a formal salary. If you're considering an S-Corp election, talk to a CPA before making any decisions. It's not the right move for everyone, and the setup and maintenance requirements are significant.

Setting up an LLC requires a few steps:

→ Choose a business name → Designate a Registered Agent (who receives legal and tax documents on your behalf) → File Articles of Organization with your state → Create an LLC operating agreement → Get an EIN → Open a business bank account → Check if your state requires business insurance

My honest take: If you're just starting out and don't have significant personal assets to protect, starting as a sole proprietor with an EIN is completely reasonable. You can always convert to an LLC later.

How to file your taxes

W-9 forms

When you start working with a US-based client, send them (or their accounts payable department) a W-9 form. The only exceptions are clients who will pay you less than $600 total in a year, or clients based outside the US.

Not sure who to send it to? Just ask the person who hired you.

1099 forms

Around February 1st of the following year, clients who paid you $600 or more will send you a 1099-NEC. You'll need these to file your taxes. Important note: even if a client doesn't send you a 1099, you're still required to report and pay taxes on that income.

Quarterly taxes

Quarterly taxes are estimated payments you make to the IRS four times a year — essentially prepaying your annual tax bill in installments. You don't file anything formal; you just make a payment.

If this is your first year freelancing, you don't have to pay quarterly taxes yet. But you'll likely need to start in year two.

You'll owe a penalty if you underpay by roughly $1,000 or more per quarter when you file. In practical terms: once you're earning over about $40,000/year from freelancing (after deductions), it's worth setting up quarterly payments to avoid any surprises.

The good news: You won't be penalized if you pay at least 90% of what you'll owe this year, or 100% of what you owed last year — whichever is smaller.

Quarterly due dates: → April 15 → June 15 → September 15 → January 15 (of the following year)

Ways to estimate your quarterly payments: → IRS estimated tax tool → QuickBooks → Keeper Tax (free calculators on their site; a paid subscription is required to actually file through them) → Hire a CPA to calculate it for you

Ways to pay quarterly taxes: → IRS Direct Pay — pay directly from your checking or savings account (takes about 15 minutes) → Check via Form 1040-ES → EFTPS (Electronic Federal Tax Payment System) — set up an account and put quarterly payments on autopay. This is what I do and what I recommend.

Some freelancers keep a separate savings account just for tax money so they're not tempted to spend it. I use a Wealthfront high-yield savings account for this — easy to set up and the interest rate is solid.

Annual filing

For your federal and state returns, I personally use and recommend FreeTaxUSA — it's affordable, straightforward, and handles Schedule C (self-employment income) well. TurboTax Premium (formerly called TurboTax Self-Employed) is another solid option if you want a more guided experience or live support — just know pricing can add up. Both let you import from QuickBooks, which makes the process a lot faster.

Whichever software you use: go through every expense category carefully to make sure nothing was missed and all your deductions transferred over correctly.

Final thoughts

Taxes are stressful when you're not prepared — I've been there. The freelancers who make tax season easy on themselves are the ones who set money aside from day one, keep their bookkeeping current, and don't wait until April to figure out where they stand.

Don't be afraid to hire a CPA, especially in your first year or when your income gets more complex. It's usually worth it.

Keeper Tax's free resource hub is also worth bookmarking. They have calculators, guides, and tutorials that can help you get oriented — even if you don't use their paid service.