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5 Tax Mistakes You’re Making as a Freelancer

Geraldine Orentas
ByGeraldine OrentasJan 19, 2023In Partnership With Collective

Raise your hand if whenever you hear the word taxes, you shiver. When I started freelancing 10+ years ago, I had ZERO tax education. I probably made every mistake on this list and more.

There’s no denying that taxes are stressful, complicated, and painfully terrifying. After all, you never want to get in trouble with Uncle Sam. And you obviously don’t want to lose money because of easy-to-make mistakes.

Whether you’re new to freelancing or have been doing it for some time, these are the most common tax mistakes you’re (very likely) committing as a freelancer and how to avoid them with help from Collective, my favorite all-in-one financial solution for the self-employed.

1. Missing the deadline to file

Most of us know tax day is on April 15th (this year it’s on the 18th, BTW). Turns out that if you have an LLC or S-Corp, your tax day is March 15th! In addition to this, self-employment taxes are paid at a different schedule. You have to pay estimated taxes throughout the year, also known as quarterly taxes, which are due:

  • April 15
  • June 15
  • September 15
  • January 15

The penalty will set you back a couple of hundred dollars, depending on how much your return is. On the bright side, Collective’s services include an accounting and tax team who will help you set up payroll, bookkeeping tools, and will help you file your business and personal tax returns.

2. Mixing personal and business expenses

You probably don’t consider separating your personal and business bank accounts when starting out. I know I didn’t! Turns out, this makes it more difficult for you (and the IRS) to know what goes where.

The easiest way to separate your expenses is by opening a separate bank account for your freelancing earnings and expenses. This way, if you’re ever audited, you can justify your deductions easily. Collective makes it easy to separate personal life from business: they will guide you through opening a business bank account if you’re new to this. Pretty nice having experts in your corner to help out, eh?

3. Going crazy (or not) with write-offs

Talking to other freelancers, we either try to deduct everything under the sun or we’re not deducting enough! Here’s a short list of common deductions:

  • Commuting costs to client meetings
  • Office space (partially for home offices)
  • Office supplies
  • Health insurance premiums
  • Legal and professional services
  • Membership dues
  • Internet and phone bills
  • Advertising

Still have questions about this? Your dedicated Member Relationship Manager from Collective is here to help.

4. Forgetting to set money aside for taxes

No matter what happens with your career as a freelancer, taxes are the only certain thing! You should always set aside a portion of your freelance income for taxes. The amount you should save varies depending on your expected rate of taxation, but I recommend saving at least 20%.

Every month, look at the money you made freelancing and move at least 20% to a separate bank account. I call mine the “tax account.” By doing this, you can rest assured that you’ll have the money to pay those quarterly taxes instead of scrambling at the last minute.

5. Not getting help

Freelancers naturally want to do everything themselves when it comes to their business. When I finally decided to get help, Collective made the top of my list for being an all-in-one solution for freelancers like myself.

For me, having an expert guide me in the best business structure for my specific situation, how to comply with all the requirements, and dealing with payroll, taxes, bookkeeping, and every other administrative task was a freelancer’s dream. As I explained my strategy and earnings to my assigned business advisor, we started working together on a better structure that would benefit me more. I never got this working with a CPA!

More than filing my taxes correctly, Collective felt like having a business advisor by my side. Now, I know my taxes and organization are being done the right way, and I can also spend more time growing my business instead of trying to deal with all the dull accounting stuff. Taxes went from “terrifying” to, honestly, kind of terrific.