I teased this two-part series on Instagram and so many of you responded — excited about taxes, which is honestly kind of delightful. For freelancers and entrepreneurs, taxes can feel like the great unknown. Most of us aren’t taught about self-employment taxes in school, and once you add the variables of freelance income and deductible expenses, it’s easy to feel overwhelmed. I worked with TurboTax to help demystify some of the most common questions self-employed people have.
TurboTax introduced TurboTax Self-Employed, and now TurboTax Live, which blends do-it-yourself filing with access to a live CPA or enrolled agent. With TurboTax Live you can prepare your return using TurboTax’s tools and also get one-on-one guidance, a review of your return, and even have the expert sign and file for you via one-way video. It’s a practical option for entrepreneurs who may not be ready to hire a tax pro but want personalized advice and confidence that their return is correct.
Below is a conversation I had with a TurboTax expert, answering the top tax questions you submitted. I also share how we handle taxes at Studio DIY so you get real examples of how these rules apply. I touch on what changes when you buy a home too — that was a major life change for me this year and many of you are/will be in the same place. Ready?
Kelly: Let’s start at the beginning. If someone is filing for the first time as a self-employed individual, what should they do first when preparing taxes?
TurboTax Expert: Gather receipts for business-related expenses, all payments received from clients, and any other relevant paperwork. Keep everything organized so when tax time arrives you have documentation ready. If your tax bill for the year is expected to be more than $1,000 and you plan to continue freelancing, the IRS expects estimated tax payments quarterly instead of waiting until the year-end.
K: Quarterly taxes — can you explain what they are and what happens if someone doesn’t pay them?
TT: Estimated quarterly taxes are payments self-employed taxpayers make throughout the year (typically April, June, September, and January) when they expect to owe $1,000 or more. Because self-employed people don’t have withholding taken out by an employer, the U.S. tax system operates on a “pay-as-you-go” principle, and you should make quarterly estimated payments.
If you don’t pay enough tax during the year through withholding or estimated payments, you may owe a penalty for underpayment. That said, there are ways to avoid a penalty. Generally, you won’t be penalized if you owe less than $1,000 overall or if you pay at least 90% of the current year’s tax or 100% of the prior year’s tax (110% if your adjusted gross income was over $150,000).
You can also request a waiver of the penalty in certain situations such as a casualty, disaster, unusual circumstances, or retirement/disability during the relevant period. Additionally, using the annualized installment method (see below) can reduce penalties if your income is uneven across the year.
K: Tell me more about the annualized installment method. My income fluctuates seasonally. How should I budget for quarterly taxes?
TT: Many freelancers have irregular income — slow months followed by busy seasons. The annualized method calculates estimated tax liability as your income accrues rather than dividing the year’s total by four evenly. If most of your income falls in one quarter (for example, Q4), annualizing can lower the required payments earlier in the year and reduce penalties.
Practically, if your business is growing and your income is relatively steady year-to-year, a simple approach is to base quarterly payments on last year’s tax bill, split into four equal payments, and pay a little more to be safe. High-income taxpayers should plan on about 110% of last year’s tax. If you underpay but don’t owe a penalty, you can still pay the balance when you file in April.
K: Let’s talk write-offs. What can and can’t be deducted? For instance, are clothes for a photo shoot deductible? What about my cell phone for a social media business?
TT: Ordinary and necessary business expenses are deductible. Typical categories include office supplies, cost of goods sold, advertising, subscriptions, licenses, equipment, auto expenses, insurance, utilities, and telephone. Business travel and 50% of business meals are also commonly deductible.
Clothing is deductible only if it is required for your business and not suitable for everyday wear — for example, a uniform that can’t be worn outside of work. If clothing can be worn off-duty, it’s generally not deductible. Internet and cell phone expenses are deductible to the extent they’re used for business; you should allocate based on business versus personal use.
K: What easy write-off do people often overlook?
TT: Technology purchases are often overlooked. Desktops, laptops, monitors, tablets, and similar devices purchased to grow your business can be deductible, especially if primarily used for business.
K: If someone uses their car for business, what deductions are available?
TT: You can deduct car expenses when the travel is specifically for business. Keep detailed records: date, miles, purpose, client or meeting details. Travel must be ordinary and necessary and pass a reasonableness test — especially for trips to resort areas. You can use the standard mileage rate (53.5 cents per mile for 2017) or actual expenses, and you can also deduct tolls and parking fees.
K: Buying a home can complicate things for self-employed people. Any tips to prepare for a mortgage application?
TT: Yes. Report accurate business income so lenders see your true finances. Lenders typically ask for the last two years of tax returns and look at net income, so consider how deductions affect reported income — taking every possible deduction might lower net income and make qualifying for a loan harder. Factor in income fluctuations when deciding what mortgage you can realistically afford.
K: If someone works from home, can they write off home expenses?
TT: If you regularly and exclusively use part of your home for business, you may qualify for the home office deduction. Deductible items can include a portion of real estate taxes, mortgage interest, rent, utilities, insurance, painting, and repairs, prorated based on the square footage used for business.
K: How should someone track expenses for easier filing?
TT: Tools that track mileage, capture receipts, and separate business and personal expenses make tax time much simpler. For example, QuickBooks Self-Employed includes mileage tracking, receipt capture, and expense categorization and can export data to TurboTax Self-Employed to streamline filing. At Studio DIY we also use a separate business bank account and credit card so personal and business expenses never mix.
K: What records should I keep in case of an audit?
TT: Keep documentation for business meals (purpose, who attended, date), travel (purpose and dates), and mileage (date, purpose, miles). Detailed records strengthen your position in the event of an audit. Consistent, organized records — whether via software or a dedicated filing system — are essential.
K: Is there a tax benefit to incorporating versus staying a sole proprietor? I run Studio DIY as an LLC taxed as an S-Corp — how does that help?
TT: Many small businesses operate unincorporated; business losses can offset other income. If you want limited liability, consider forming an LLC, partnership, or corporation. Tax-wise, an S corporation can have advantages: owners who elect S-Corp status pay self-employment taxes only on the salary they pay themselves, whereas LLC members typically pay self-employment tax on the entire net income. The right structure depends on your situation, so consult a tax professional for tailored advice.
There you have it — practical answers to common freelancer tax questions and a few steps you can take now to be prepared. In part two I’ll share tips my team and I used while filing our taxes, where we found savings, and how we plan to be even better prepared next year. Stay tuned!
This post was created in partnership with TurboTax. All content and opinions are my own.