Gig Business

Useful Tips on Taxes for Freelancers

By Megan Price

Tax season can be daunting, especially for musicians and entertainers who are self-employed or freelancers. Since you don’t have an employer to submit taxes for you or provide with you easy documentation of your income, there’s a lot more to handle on your own. And who wants to mess things up when it comes to the IRS? With a little preparation and some knowledge about how everything works, tax season can be a little less stressful and scary for gig workers.

We talked to several tax professionals and other performers like you to get a comprehensive list of tax tips for freelancers to help you with this year’s tax filing and be better prepared for future tax seasons.

Plan ahead

It’s required by law to pay taxes if you make more than $400 a year in freelance income. This means self-employed individuals must send tax payments to the IRS on their own. When you work for someone else, the company generally covers that for you on a monthly basis.

If you’re making more than $1,000 per year as a sole proprietor or with self-employed business income, the IRS recommends that you make quarterly estimated tax payments. Making payments ahead of time makes it easier to get ahead of what you can expect to owe on your tax bill.

Currently, the self-employment tax rate is 15.3% – which covers your income taxes and social security and Medicare tax contributions. Co-Founder of Fig Loans John Li says, “Taking this into account, it may be wise to save between 25-40% of your total income to pay for taxes.”

πŸ’° Helpful resource: Self-Employed Individuals Tax Center

Stay organized

Keeping track of your income and expenses throughout the year is crucial for freelance workers to comply with tax laws and contributions. At the basic level, you should:

  • Set up a separate business account with a dedicated credit or debit card for all expenses.
  • Have a central location for storing paperwork and important documents so they’re easily accessible at tax time.
  • Collect documents like versions of Form 1040 as they come in and keep them together.

πŸ’‘ Pro tip: As your business grows, you may want to consider the benefits of incorporating.

Get the right tools

If you’re still keeping your receipts in a shoebox, it may be time to update your process! There are several low-cost (or free) tools you can use to track your income, add up expenses, send invoices, and more. When it’s time to file your taxes, you’ll be grateful to have all of the necessary information in one place.

To get your accounting on track, many accountants or CPAs recommend QuickBooks. It’s definitely the most well-known but does have a cost starting at $15/mo. If you’d like to try something for free, we recommend Wave. You can link your bank accounts, scan receipts, track expenses, send invoices, accept payments, and more – all at no cost!

Other easy-to-use platforms include FreshBooks (starting at 7/mo) and Xero (starting at $4/mo).

The Best Accounting Software for Freelancers
Zapier breaks down 8 tools for freelancers and consultants to streamline their bookkeeping.

Know your deductions

Once you’re organized, it’s time to learn about what can be deducted when filing your tax returns. And the answer is almost anything related to your business!

Space and equipment

Whether you own or rent, the space you use to conduct business can be a deduction on your freelancer taxes. For musicians and performers, this can mean both rehearsal and preparation space, as well as your home office.

“Your home office will need to meet specific eligibility requirements set by the IRS. For one, you must regularly use it exclusively for business. If you use a spare room to run your company, that could be a home office. If you bring a laptop to the den once in a while, that isn’t deductible,” advises Josh Zimmelman, managing director of Westwood Tax & Consulting.

Keep in mind that you can only deduct the space that is used. If your studio is 1/5 of your home, you may only deduct 1/5 of your rent or mortgage payment. This deduction also applies to the portion of your internet, phone, and utility bills being used for business.

In addition to where you conduct business, you can also deduct the equipment and supplies needed to perform. “As a freelance artist, you’re a business owner, and the tools you need to run your business are tax-deductible. For example, musicians can deduct the cost of instruments, cables, and music stands. Painters can deduct the costs of easels, colors, and brushes,” says CPA Logan Allec of Money Done Right. Think about the equipment or supplies that are necessary for your freelance work, and then be sure to track those business expenses throughout the year.

🏠 Helpful tool: Calculate your home office deduction

Marketing, advertising, and improving your craft

No business is successful without a bit of marketing, and luckily you’re able to deduct those related expenses. “Your advertising and marketing is 100% deductible,” says Dan Chan, The Millionaire’s Mentalist on GigSalad. “I also deduct my GigSalad membership fees as part of my marketing expenses every year.”

πŸ‘‰ Pro tip: You can find a full membership billing history in your GigSalad account.

“If you have spent money on paid ads, business cards, brochures, sponsorships, or online advertising, you can deduct these expenses,” advises Adam Garcia, CEO of The Stock Dork.

Lastly, the IRS allows you to deduct any education costs related to improving your business or expanding your services. Remember, these must be related to your current business and cannot be for exploring a new line of work. For example, a photographer can deduct the expense of learning a fresh technique for photo editing but not for Salsa dance lessons.

Join GigSalad to get leads and book gigs.

Travel expenses

Travel is a necessary part of being a gigging musician or performer. Luckily, for the most part, your travel expenses are tax-deductible. This means keeping track of your mileage, food receipts, hotel bills, airline ticket costs, and more. Only 50% of your travel meals are deductible, but they can still be worth tracking.

There are actually a couple of ways you can deduct mileage. You can calculate by standard mileage rate or actual expenses related to the vehicle used for business.

Current business mileage rates:

  • 2023 tax year (taxes filed in 2024) – 65.5 cents per mile
  • 2024 tax year – 67 cents per mile

It’s important that you accurately log all of your miles. There are several mileage tracker apps that make this easy to do. If you choose to deduct based on car expenses, be sure to record every expense related to your vehicle. Then determine what percentage of your car usage applies to your business.

πŸš— Learn more: Choose a method for tracking and deducting mileage that works best for you.

Insurance premiums and retirement contributions

Since you’re likely paying your own insurance costs as a freelancer, it’s nice to know that those are likely deductible. According to Investopedia, “As long as you are self-employed, pay for your own health insurance premiums, and are not eligible to participate in a plan through your spouse’s employer, you can deduct all of your health, dental, and qualified long-term care (LTC) insurance premiums.”

In addition to health insurance premiums, Adam Garcia says, “Freelancers are allowed to claim basic insurance premiums as deductions. The most common ones include workers’ compensation insurance, liability insurance, and accidental insurance.”

πŸ“– Read this: Is Business Insurance Tax Deductible?

Don’t forget your 401(k)

It’s important to plan for the future, and a 401(k) is one of the most traditional ways. But if you work for yourself, you won’t have an employer to make contributions on your behalf. The IRS allows for some tax breaks when it comes to certain retirement plans.

Solo 401(k) accounts are reserved for those who are self-employed and have no employees. Once you’ve set one up and begun contributions, you can potentially deduct those on your tax forms.

According to Whitney Nash, CEO of Nashional Self-Directed, “Contributions to a Self-Directed Solo 401(k) can allow freelancers to shave up to $61,000 (or $67,500 for those 50 and older) off their 2021 taxable income. Doing so not only reduces their taxable income considerably, but it could possibly bring them down to a lower tax bracket. As a bonus, the fee to establish the plan and the nominal annual fee to maintain the plan can be business tax deductions as well.”

πŸ§“ Learn more: What Is a Solo 401(k)? Self-Employed Retirement Plans

Taking on your taxes as a gig worker may seem overwhelming. With a bit of organizing and educating yourself on the current tax laws, you’ll be maximizing your deductions in no time!

Disclaimer: The article was created for informational purposes only. It is not intended to be, and should not be taken as, a substitute for obtaining tax and financial advice from a licensed tax professional. While we strive to provide you with accurate and up-to-date information, we assume no liability for any reliance on said information.

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