Doing your own taxes can feel scary. Especially if this is your first year as an Upwork freelancer. In reality, the whole process as a freelancer is pretty straightforward. In this article you are going to discover how to file your own income taxes as a self-employed Upwork freelancer as well as how you can save money on what you owe to the IRS by using tax deductions.
How does Upwork handle taxes for freelancers?
As a freelancer, you are self employed or what the IRS calls an “independent contractor”. If you make more than $600 from clients, you are required to report your income on the U.S. tax return. If you make less than that amount, you won’t have to report your income.
Since you are a self-employed worker completing freelance work, Upwork will not withhold your taxes for you. You will have to set aside a portion of your 1099 income to pay off your taxes.
In the next section, we will go over how to report your taxable income and what percentage of taxes you will owe exactly.
Reporting income from your Upwork 1099
Form 1099 is how the IRS tracks all your income that is classified as independent contractor earnings.
There are a few types of 1099 forms that each report different sources of income. When you are a self-employed freelancer, Upwork and PayPal will send you a 1099-K, but only if your income is above $20k or if you have 200+ transactions on your account.
Your clients are also not required to send you a 1099 form.
Many people fall under the assumption that they don’t have to file their taxes just because they don’t receive a 1099 form. You will still need to report income if you earned over $600 whether or not you received a form.
The IRS sometimes won’t catch a mistake for years, but once they do you will owe them for the unreported wages along with a penalty fee
You will need a record of the total income that you received from your clients. You can easily access all your income from your Upwork profile.
How to get your transaction history From Upwork
- Sign in to your Upwork account
- Go to the reports tab
- Select “Transaction History” page from the drop-down menu
- Select a custom date range under the “statement period” section for the entire date range that you’ve been freelancing. From January 1st to December 31st.
- If you would rather have your transaction history in an excel sheet, then click the “download CSV” button. This file has all of your information organized in an excel sheet for you.
Now that you have the yearly income you’ve received from your clients you must find out what total percentage you owe.
Writing off your expenses
As an independent contractor, you are allowed to deduct business expenses from your tax bill. That is why it is important to keep track of all your business expenses. They also have to be separated from your personal expenses.
A lot of 1099 workers believe that if they are only working part-time, they shouldn't track their expenses. You should still have good records of your business expenses even if you are only working part-time.
The best way to keep track of your expenses is by using a 1099 excel template or an automated business expense tracker.
Filing for your income is only half of the battle. Now it’s time to take back some of that hard-earned money of yours from Uncle Sam. The expenses claiming form you will need to fill out is a “Form 1040 Schedule C”.
Here are the most important deductions for freelancers.
Since you are working online, you will need a new computer or accessories sometimes, these equipment purchases are tax write-offs. When you buy a computer, the value will depreciate. You also will get to write off how much the computer’s value depreciates over time.
Home office expenses
When you work from a dedicated workspace in your home, the IRS allows you to write off the expenses of that space based on the square footage percentage of your workspace compared to your home. You can get a rent or utility bill deduction based on this percentage, but you have to use that space for work only.
Social media ads and Google ads are the most common for Upwork freelancers.
Meals with clients
Do you have meetings with clients in person over a meal? You can deduct a portion of these meals.
Subscriptions and software tools
Some tools that are very common with freelancers are stock image website subscriptions, personal brand websites, business credit cards, and tax accounting software.
Upwork service fees
You know all those fees you paid Upwork? You can write those off and get a major cash kick back.
If you take any online classes that directly relate to your freelancing career those are a write off as well.
Paying estimated taxes on your Upwork income
As a freelancer, you are required to make quarterly tax payments to the IRS. When tax season rolls around, you do not want to have missed your estimated tax payments and received a penalty.
You can calculate how much you owe by using Keeper’s estimated tax calculator.
The current self-employment tax rate is 15.3%.
This will pay for your future Social Security and Medicare that regular 9-5 employees have deducted automatically. As a freelancer, you are legally considered an employee and an employer. The good news is half of your self-employment portion is tax-deductible. More on that later.
Here are the dates you have to file quarterly taxes by:
- First Quarter: April 15th
- Second Quarter: June 15th
- Third Quarter: September 15th
- Fourth Quarter: January 15th
Let’s automate your taxes
Overall, tax filing and doing your own small business taxes feels very rewarding. Once you dial in your deductions and you watch what you owe the IRS, you'll feel inspired to keep learning.
Let me tell you, if you are like me, you just want a simple way to file your taxes without worrying about getting all the nitty-gritty details of your 1099 form correct. Keeper is a fantastic tool that will scan your credit cards and bank account statements to automate this entire process for you.
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At Keeper, we’re on a mission to help people overcome the complexity of taxes. That sometimes leads us to generalize in our educational content. Please email firstname.lastname@example.org if you have questions.