On a salary, taxes mostly take care of themselves. Your employer withholds income tax, pays half of your Social Security and Medicare, and sends you a W-2 at year end. Once you start freelancing, every one of those jobs becomes yours.
None of it is especially hard, but the first year is when most surprise tax bills happen, usually because nobody told the new freelancer what changed. This checklist covers the essentials.
Separate your business money from day one
Open a dedicated checking account for business income and expenses, even if you are a sole proprietor with no LLC. It makes tracking income simple, gives you clean records if you are ever asked about a deduction, and makes it obvious at a glance what the business actually earned.
Get your paperwork in order
Clients will ask for a W-9 before paying you. A few small setup steps help:
- Consider getting a free EIN from the IRS so you can give clients that number instead of your Social Security number
- Check whether your city or county requires a business license for the kind of work you do
- Keep copies of any 1099 forms you receive, but track your own income independently
Start a tax set-aside and estimated payments
No one is withholding tax from client payments, so you need to do it yourself. Move a fixed percentage of every payment into a separate savings account. If you expect to owe $1,000 or more for the year, you will likely need to make quarterly estimated payments, generally due in mid-April, mid-June, mid-September, and mid-January. In your first year, the prior-year safe harbor based on last year's W-2 tax can be an easy way to avoid penalties.
Track expenses and mileage as you go
Reconstructing a year of receipts in March is miserable and usually incomplete. Use a spreadsheet, accounting app, or even a dedicated folder, and log business mileage the day you drive it. Common first-year deductions include equipment, software, a home office, professional fees, and part of your phone and internet.
Revisit your benefits
Leaving a job usually means losing employer health insurance and a workplace retirement plan. As a freelancer you may be able to deduct health insurance premiums and open a SEP IRA or solo 401(k), both of which lower your tax bill. If you also had a W-2 job for part of the year, remember that income stacks with your freelance profit for tax purposes.
Estimate your bill before the year ends
Around October or November, total up your profit so far and project the rest of the year. Running those numbers through a quarterly estimated tax calculator gives you time to adjust your final payment, buy equipment you were going to need anyway, or make a retirement contribution while it can still count.
This article is for general education only and is not tax or legal advice. Tax rules vary by jurisdiction, change over time, and depend on your specific situation. Talk to a qualified tax professional before making filing or payment decisions.