A Simple System for Paying Your Freelance Taxes

Did you just have to write a big check to Uncle Sam for taxes on your freelance business? If you’re an independent contractor, you’re responsible for setting aside enough for taxes so that when the Taxman holds out his hand, you have what’s needed.

There’s nothing less fun than being a few thousand—or more—short. Here’s an idea to hopefully make Tax Day a little less painful next year.

A few years back, I opened up a simple no-fee, no-interest savings account that I use to save money for taxes. Now, whenever I get a check from a client, the first thing I do is transfer a certain chunk of money from accounts into which I’ve just deposited client checks into this savings account.

The money is safe, separate and sacrosanct. I don’t touch it, ever, and in fact, I just pretend it’s not even there. Problem solved.

How much should you save for taxes? It could be anywhere from 20-40% depending on how many deductions you have. If you miscalculate and don’t set enough aside this year, you can make adjustments next year.

And if you end up with, say, $2K extra in there after you file, hey, there’s your vacation money. Or just keep it in there for the next year’s taxes.

Sure, it’s a simple system, but it provides serious peace of mind. Life as a freelancer can be stressful enough without adding a yearlong, low-grade anxiety about taxes.

Now is a great time to put this strategy into practice, while the pain of April 15 might still be on your mind. Come next April, you’ll be glad you did!

Authored by Peter Bowerman
Veteran commercial freelancer and business coach Peter Bowerman, is the author of the award-winning Well-Fed Writer series—how-to standards on the subject of freelancing for businesses. Subscribe to his ezine and blog at www.wellfedwriter.com.