When it comes to paying their taxes and optimizing their tax savings, freelancers sometimes have particular difficulties. An increasing number of people are working as independent contractors due to the growth of the gig economy, which means they are in charge of their own taxes. One tactic that independent contractors frequently employ to give themselves extra time is requesting a tax extension. To make sure they remain out of trouble with the IRS, freelancers should avoid a few blunders while requesting a tax extension.
A 1099-K: What is it?
When requesting a tax extension, freelancers frequently make the error of neglecting to disclose their revenue from websites such as Etsy, Airbnb, and Uber. These platforms record revenue received through their services using a document known as a 1099-K. It’s crucial to remember that the revenue shown on a 1099-K is gross rather than net. This implies that before declaring their revenue on their tax return, independent contractors must deduct any costs associated with their labor.
It is imperative that freelancers correctly record any revenue made through 1099-K platforms, as failure to do so may result in fines from the IRS. Freelancers should be careful to include revenue from a 1099-K on their tax extension request in order to prevent future complications with the IRS.
Taxes on Self-Employment
Ignoring self-employment taxes is a frequent error freelancers make when submitting a tax extension request. Freelancers must pay self-employment taxes, sometimes known as the employer and employee components of Social Security and Medicare taxes, in contrast to regular workers. Freelancers should set aside a percentage of their income each year to pay for these taxes since they can mount up rapidly.
Freelancers should be careful to estimate their self-employment taxes and include them in their tax extension request when submitting it. It’s critical for freelancers to remain on top of these payments to prevent any complications come tax time, as nonpayment of self-employment taxes can result in fines and interest from the IRS.
Quarterly IRS Disbursements
Throughout the year, freelancers must also submit quarterly anticipated tax payments to the IRS. These payments are intended to pay income tax, self-employment tax, and any other taxes due; they are determined by the freelancer’s projected income. It’s crucial for freelancers to remain on top of these payments to prevent any problems at tax time, as missing quarterly payments can result in fines and interest from the IRS.
Freelancers should be careful to mention any quarterly payments earned during the year on their tax extension request when filing. This can assist avoid any fines or interest from being levied and help guarantee that the IRS has an accurate record of the freelancer’s tax payments.
Conclusion
For independent contractors who require additional time to compile their tax records and file their returns, filing for a tax extension may be a prudent course of action. To keep out of trouble with the IRS, freelancers must, nonetheless, make sure they don’t make these typical blunders when submitting a tax extension request. Freelancers may optimize their tax savings and avoid fines and interest from the IRS by correctly reporting revenue from platforms such as Uber, Airbnb, and Etsy, accounting for self-employment taxes, and making quarterly anticipated tax payments.