Guides
Guides
The longer explanations behind the calculators — what the rules actually say, in plain English, without trying to sell you accounting software.
United States only. These guides cover US federal tax. They do not apply to Canada, the UK or other countries.
Starting out as self-employed
What actually changes the first time you earn money that nobody withheld tax from.
- Your first year freelancing: the tax checklist nobody gives you The four things that catch first-year freelancers out, starting with the 15.3% tax you have never seen because an employer paid half of it.
- What does a $100/hour freelance rate actually pay you? About $69 an hour after federal tax and expenses — and closer to $45 for every hour you actually work. The arithmetic between the rate and your bank account.
- Sole proprietor vs self-employed: what's actually the difference? One is a tax status you can't avoid; the other is a business structure you get by default. Almost everyone who is one is also the other — but not quite everyone.
- The $600 myth: do you owe tax on side income under $600? Yes. The $600 figure was your client's paperwork obligation, not a tax threshold — and from 2026 it is $2,000. The number that actually matters is $400.
- You have a job and a side business. How much self-employment tax? Your salary uses up the Social Security wage base first, so the same side profit can cost $5,652 or $1,264 depending on what your job pays.
- Do you need a separate business bank account? Legally, only if you have an LLC. Practically it is the single highest-value hour you can spend on your finances, and it costs nothing.
Quarterly and estimated taxes
The four payments a year that nobody warns you about until you owe a penalty.
- Quarterly estimated taxes: a plain guide for the self-employed Who has to pay, the 2026 due dates, how to work out each payment, how to send it, and what happens if you skip one.
- How much should you set aside for taxes as a freelancer? The 30% rule overshoots at almost every income level. What the 2026 arithmetic actually says, and when 30% stops being enough.
- The safe harbour rule: how to never owe an underpayment penalty Pay 100% of last year's tax and you are protected from the penalty regardless of what you earn this year. The most useful rule in freelance tax.
- Estimated taxes when your income is wildly uneven Paying a flat quarter punishes anyone with a lumpy year. The annualised method lets you pay what you actually earned, quarter by quarter.
- You missed a quarterly tax payment. What actually happens now There is no fine for missing one. The penalty is interest, it is smaller than people fear, and there is a way to erase it entirely.
Deductions, and lowering the bill
What genuinely comes off your taxable income, and what the rules ask of you in return.
- The deductions self-employed people most often miss The home office rule people wrongly fear, the mileage rate that beats actual costs, half your phone bill, and retirement accounts that dwarf an IRA.
- The QBI deduction: 20% off your business income, explained Most self-employed people can deduct 20% of business profit with no spending and no receipts. How it works in 2026, including the new $400 minimum.
- The home office deduction: the audit myth, and which method pays more It does not trigger audits. The simplified method caps at $1,500, the actual method often doubles it, and exclusive use is stricter than people think.
- Can you deduct a laptop? And should you deduct it all at once? Yes, on the business-use share. The real question is whether to write it off in one year or spread it — and in a low-profit year, spreading it is worth more.
- Mileage or actual costs? The 2026 vehicle deduction, with the mid-year rate change The IRS raised the mileage rate part-way through 2026, so the year has two rates. How to split your log, and when actual costs win.
- The self-employed health insurance deduction, and the trap inside it One of the largest deductions available to a freelancer, and the one most often filed on the wrong form. It also does not reduce self-employment tax.
- Solo 401(k) or SEP-IRA? The 2026 numbers, and the deadline that decides it Both cap at $72,000 in 2026, but the solo 401(k) gets there on far less income. The catch is a December 31 deadline the SEP does not have.
- The SEP-IRA “25% rule”: why your real limit is closer to 18% The 25% is of compensation, and a self-employed person has none. After the circular adjustment the real ceiling is about 18.6% of net profit.
- Can you have a solo 401(k) and a job with a 401(k)? Yes — but one limit is per person and the other is per employer, and mixing them up is how people over-defer. Which number applies to which pot.
- How late can you still open a retirement account for last year? A SEP-IRA can be opened and funded after the year ends — an IRA cannot. Four plans, four different cut-offs, and only some of them move with an extension.
- Is a coworking space deductible? And can you claim both? Fully deductible, and simpler than a home office. But claiming both in the same year is possible — and the interaction changes which of your car journeys count.
- Can you deduct courses, books and conferences? If it improves skills you already use, yes. If it qualifies you for a new profession, no — and that line is stricter than most freelancers assume.
- What if you have no receipts? Not automatically lost. Bank records and reasonable reconstruction carry most categories — but four kinds of expense have far stricter rules.
Structure, hiring and paying people
Whether to form something, what it costs to keep, and how money legitimately leaves it.
- Sole proprietor, LLC or S corp: when each one actually saves money An LLC saves no tax at all. An S corp does, but only above a profit level most freelancers never reach. The honest comparison.
- How to pay yourself from an LLC (and why it isn't a salary) A single-member LLC owner takes draws, not wages, and is taxed on profit whether or not any money moves. The transfer is just bookkeeping.
- How do you actually withdraw money from an LLC bank account? The mechanics: transfer it, record it as a draw, and never spend from the business card personally. Plus the two limits on how much you can take.
- How do you pay yourself in a multi-member LLC? Two different ways money reaches a partner — distributions and guaranteed payments — and only one of them is deductible by the LLC. Plus the K-1 trap.
- Do you need an EIN as a sole proprietor? Legally, usually not. Practically, get one anyway — it is free, takes ten minutes, and stops you handing your Social Security number to every client.
- Seventeen states tax your LLC for existing. Most fee tables list none of them We audited all 51 US jurisdictions for entity-level taxes on LLCs. Rhode Island's real floor is $450, not $50. Six states are missing from fee tables.
- Hiring your first contractor: 1099 or W-2, and the risk of guessing The classification is not yours to choose. Getting it wrong makes you liable for both halves of payroll tax, plus penalties, across years.
- Can you hire your spouse or your children? Paying your own child under 18 in a sole proprietorship avoids payroll tax entirely — one of the few genuine family tax advantages left, with strict conditions.
- What it really costs to dissolve an LLC The state filing fee is $0–$200. The expensive part is the tax year you fail to close — and simply abandoning the company is the costliest option of all.
Invoicing, 1099s and getting paid
The paperwork between doing the work and the money being safely yours.
- Can you invoice someone without a registered business? In the US, yes — an invoice is a bill, not a licensed document. What actually matters is the W-9, the 1099 and whether your city wants a licence.
- 1099-NEC vs 1099-K: why your forms don't match what you earned Two forms often report the same money twice, and a 1099-K includes fees and refunds you never kept. How to reconcile them without over-reporting.
- A client never sent your 1099. What now? Report the income anyway. The form is your client's obligation, not the definition of what you earned, and the IRS may already hold a copy you never saw.
- Bookkeeping that holds up: what you actually need to keep You do not need accounting software. You need a separate account, a receipt habit, and records that reconstruct the year.
Filing, and what you owe where
The return itself — what goes on it, where it goes, and how to fix it afterwards.
- Schedule C, line by line, for people who have never filed one Every line of Schedule C, with the exact IRS caption, what a freelancer actually puts there, and where the common expenses go. Includes a worked example.
- You moved states mid-year. Which one taxes your freelance income? Two part-year returns, income split by when you earned it, and the states that keep taxing you until you prove you really left.
- Do freelancers have to charge sales tax on services? In most states, services are not taxable — but the exceptions are growing, and digital products are treated very differently from the work that produced them.
- You made a mistake on your return. How to fix it Form 1040-X, three years to file it, and the cases where you should do nothing at all — because the IRS fixes some errors itself and amending would duplicate them.
- Do you need an accountant? What one costs, and when it pays for itself A straightforward freelance return does not need one. An S-corp election, a multi-state move or employees does. The thresholds and the fees.