Freelancer’s Tax Shortcuts for 2018

I work with a ton of freelancers, and they have to deal with a litany of issues from issues getting paid, finding new business, paying their own taxes, sourcing their own healthcare, sorting out their own retirement plans and so on and son. To make the burden a bit easier, I’ve calculated the exact amount of tax that a freelancer would need to pay under certain amounts of NET INCOME (revenue minus tax deductible expenses) below.

How to Use This Table and Some Caveats

First of all, as a necessary disclaimer, this is not tax advice. Full disclosures and fine print are below. Also, the tables only go up to 150,000 because things get complicated from there and you should have hired a tax account about $80,000 ago anyway.

However, this information should be helpful to pure freelancers. By pure freelancers, I mean people that have less than $5,000 of other types of income (dividends, wages, interest, real estate or partnership income, etc.).

To use this table, find your NET income (I can’t stress NET versus gross income enough) along the top row. Your Federal and Self Employment tax obligations will be listed closely underneath of that. Your NY + NYC tax (it all goes to the same place) will be in the next section, and finally your total tax obligation will be under that.

So what do you do with this information? Pay your taxes ahead of time on a quarterly basis or at least be aware of how much you need to set aside for taxes by April of 2019. I’ve listed how much you should pay in quarterly estimates to each jurisdiction (New York is a separate vampire that requires its own compliance).

Finally, I’ve listed the Effective Tax Rate, which is how much you need to set aside from your net income to make sure you cover your obligations. If you’re not going to pay estimates, you should at least be setting this aside in a high yield savings account.

Example

Let’s get a little more concrete here. Here are the liabilities a freelancer netting out a respectable $70,000.

If you’re situation is more complicated than this (i.e. wages + freelance income, or you want to make retirement contributions), than you should consult a tax advisor :)

As mentioned, here’s the typical disclaimer

Required Circular 230 Notice: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or tax-related matter(s) addressed herein.