Self-Employed Tax Checklist: Everything Freelancers Need to Know About Taxes

Tax season is daunting enough for a regular employee. You, lucky freelancer, have extra hoops to jump through. 

Keeping track of your income and expenses, understanding deductions, and filing your taxes correctly can be overwhelming. Fortunately, we’ve created this self-employed tax checklist to make filing as a freelancer a breeze.

This checklist will help you gather all of the necessary information and forms you need to file your taxes accurately and on time. It’ll also help you identify potential deductions and credits that you may be eligible for, which can help reduce your tax liability. All of the features described below are accessible in the Lunafi app, though the same best practices apply no matter what software you use. 

Before we dive in, let’s take a closer look at how freelancer taxes differ from “regular” or W2 taxes.

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Freelancing and Taxes

Freelancer or self-employed taxes differ from regular employment taxes in a few key ways. Here's what you need to know:

1. Self-Employment Tax: As a freelancer or self-employed individual, you're responsible for paying the self-employment tax, which covers Social Security and Medicare taxes. Unlike regular employees, who split these taxes with their employers, you're responsible for the full amount.
2. Estimated Quarterly Payments: Instead of having taxes automatically withheld from your paycheck, you'll need to make estimated quarterly tax payments throughout the year. This requires estimating your income and calculating the amount you owe in taxes. Failing to make these payments can result in penalties and interest charges.
3. Business Expenses and Deductions: One advantage of being self-employed is the ability to deduct certain business expenses. You can deduct expenses like office supplies, equipment, travel costs, and even a portion of your home if you have a dedicated workspace. Keeping detailed records of your expenses is essential for accurate tax reporting.
4. Form 1099-MISC: As a freelancer, you may receive Form 1099-MISC from clients who paid you $600 or more during the tax year. This form reports your income to the IRS, and you'll need to include it in your tax return.
5. Self-Employment Retirement Plans: As a self-employed individual, you have options for setting up retirement plans specifically designed for freelancers. These plans allow you to save for retirement and provide potential tax advantages. More on this later.
6. Additional Tax Considerations: Depending on your location, you may have to pay state and local taxes in addition to federal taxes. It's important to understand the tax requirements and regulations in your specific jurisdiction.

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Introducing Lunafi

What is Lunafi?

Lunafi is a financial services app designed specifically for freelancers. We aim to empower consultants, contractors, and gig workers everywhere to navigate their finances with more confidence thanks to our frictionless platform that combines all your earnings, expenses, deductions, and estimated taxes all in one place. 

We know that freelancing and taxes seem to go together like oil and water. One gives you autonomy, and the other can drag you into the IRS’ complex bureaucracy – but taxes don’t have to be such a struggle. Our financial planning tools help you stay on top of your tax obligations throughout the year to avoid any surprises when tax season rolls around.

That’s why we’ve prepared this self-employed tax checklist to walk you through every step of stress-free tax planning. 

Your Self-Employed Tax Checklist

Below you’ll find a list of the essential information you need to file taxes as a self-employed person. Note that the recommendations below are for a sole proprietorship. LLCs and S Corps have slightly different requirements, and it’s always best to look at local and state requirements for these entities.

1. Personal Records

This includes your full legal name, Social Security number and/or EIN, and address.

2. Income Records

Your income records document all your earnings. If you earned over $400 from a single source, you are legally required to report it. Businesses that pay you over $600 are required to file  1099, which they should forward to you in advance of tax day. 

What happens if you don’t receive a 1099 but are supposed to?

Start by sending the business/client a reminder in case they simply forgot to send your 1099. If you still don’t receive a 1099 in time to file, simply note the income in your records and the IRS will pursue the business/client to ensure they are accurately reporting your payment as well. You should be in the clear so long as your recorded income is accurate.

3. Accounting Records

Have last year’s federal and state returns handy, as well as profit and loss (P&L) statements and balance sheets. With Lunafi’s “Reports” feature, you can export these records in a few easy steps. Simply:

• Step 1: Go to “Reports” in the main menu
• Step 2: Select P&L, business expense details, or personal expenses
• Step 3: Select your date range(s). You can use our preset options for years and quarters, or define a custom range. 
• Step 4: Pick which file format (.csv or .pdf) and export! If you have unclassified transactions from this date range, you will receive a notification before exporting. To ensure you’re not missing any income, business expenses, or possible tax deductions you may want to revisit your Transactions for this period and assign any unclassified transactions to the appropriate categories.

The IRS recommends that sole proprietors hold onto all tax records for a minimum of 3-7 years for claim filing purposes. 

4. Estimated Tax Payments

As a self-employed individual, you're responsible for estimating and paying your own taxes quarterly. If you don't pay enough taxes throughout the year, you may be subject to penalties and interest charges. With the right tools, however, accurately estimating your taxes allows you to proactively plan your finances and avoid underpayment penalties. 

Lunafi allows you to flag potential deductions, view tax savings, and tally your estimated tax liability with each transaction, in real-time. But first, you have to set up your tax profile. 

Select “Taxes” in the main menu and you will be prompted to answer 10 simple questions about:

1. The state you’re filing taxes in
2. Your filing status (single/married, etc.)
3. Whether you will receive any W2 wages (Lunafi does allow you to categorize income as W2 or 1099 and takes this into account when calculating your tax liability).
4. Your total income for the current financial year.
5. Health insurance costs
6. HSA contributions (more on these later)
7. Retirement plan contributions
8. IRA contributions
9. Your home office space (if you have one – if you rent an office that would classify as a business expense)
10. Transportation, or how much you drive for work. Note this is measured in miles so be sure to track miles when you drive for work (whether that’s a commute, driving to client destinations, etc)

Once your tax profile is complete, you’ll see that we calculate your estimated taxes for the current year:

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You can also view estimated taxes for previous years to extrapolate what you might owe each quarter this year.

5. Common Freelance Tax Deductions

It’s easy to forget that, even though you’re a freelancer, you’re running a full-fledged business! That means that you too can take advantage of tax deductions and savings to reduce your taxable income.

Some common deductions include:

• Business expenses: You can deduct any expenses that are necessary and ordinary for your business, such as office supplies, equipment, and professional services.
• Home office deduction: If you work from home, you may be able to deduct a portion of your home expenses, such as rent, utilities, and internet.
• Travel expenses: If you travel for business, you can deduct expenses such as lodging, meals, and transportation.
• Charitable donations: If you make charitable donations, you may be able to deduct the value of your donations on your tax return.
• Health insurance premiums: If you pay for your own health insurance, you can deduct the cost of your premiums.

But Lunafi has also identified deductible expenses common among consultants, creative freelancers, and gig workers. Our app includes categories like:

• Childcare (100%)
• Business Loans (100%)
• Yoga and other fitness gear for instructors and personal trainers (100%)
• Camera, audio, or cooking equipment for the photographers, podcasters, and chefs out there (100%)

Once you’ve linked your bank account(s), Lunafi will automatically flag potential tax deductions and calculate your estimated tax savings in real-time. You can even create rules so that transactions from a specific vendor are always categorized the same.

By taking advantage of these deductions, you can reduce your taxable income and save money on your tax bill.

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Understanding Tax Forms for Freelancers

The main forms As a freelancer, the main forms you’ll be dealing with are:

• The 1099-NEC, 1099-MISC, and/or 1099-K to report income (which you need will depend on the products/services provided)
• Schedule C to report your business income and expenses
• Schedule SE to calculate your self-employment tax

It is VERY important to note that if you work with clients who pay you less than $600, they are not required to send you a 1099 form. However, you are still responsible for reporting that income on your tax return.

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Stress-Free Freelance Tax Filing

While Lunafi can’t file your taxes for you, we can equip you with the tools and resources you need to track your tax liability year-round. That way, you’re not tearing through the house trying to scrounge up old receipts and invoices come March.

Being fiscally responsible for your own taxes can seem daunting at first, but with the right tools and knowledge, you can easily navigate the tax process. By staying organized and informed, you can make the tax process easier and ensure that you are taking advantage of all available deductions to set yourself up for financial success.