Freelancer Tax Basics: Estimating & Planning
Freelancers handle their own taxes. That means setting aside money for federal and state income taxes and self‑employment taxes (Social Security + Medicare).
Quarterly estimates
Set aside a portion of each payment to cover your next quarterly tax. A simple rule is 25–30% of gross, then fine‑tune based on your deductions and state.
Plan ahead
Use our converter as a rough take‑home estimator for hourly contracts, then build a budget around your net.
Run your numbers in the Hourly → Salary Converter.
Budget formula
A simple starting point is to set aside 25–30% of gross receipts for taxes, then refine after your first few months using actuals. Track expenses (software, equipment, home office, mileage) to reduce taxable income.
Quarterly reminders
Mark calendar reminders for estimated payments (typically April, June, September, and January). Paying on time helps avoid penalties.
Self‑Employment Tax Explained
Freelancers pay both the employer and employee portions of Social Security and Medicare (called self‑employment tax). That’s why setting aside money from each invoice is essential. A simple rule is 25–30% of gross receipts pending your deductions and state.
Deductible Expenses
- Software, equipment, and professional services.
- Home office (if used exclusively and regularly for work).
- Business travel and mileage.
- Education relevant to your trade.
Quarterly Payments & Cash Flow
Mark calendar reminders for quarterly estimates. Consider a separate savings account for taxes—transfer a percentage of each payment immediately to avoid surprises.
Pricing & Retainers
Price with taxes in mind. If a client asks for a lower rate, negotiate scope or a longer commitment rather than discounting hourly without limits.