Freelancing isn’t all sweatpants and snooze buttons.
Well, sometimes it is. But most of the time, it’s cabin fever, caffeine withdrawal, fickle cash flows, and fierce competition for clients.
When you boil it down, being your own boss is really hard work — and no time is that more apparent than during tax season.
Compared to those with a typical 9-to-5 job or even small business owners, freelancers and self-employed workers face a unique set of challenges when it comes to filing an annual return. For one thing, you need to maintain year-round business records that are separate from your personal ones to make sure you’re organized once tax season rolls around. You’re also responsible for completing all the paperwork on your own while hoping-slash-praying that you haven’t missed any deductions. (Your home office counts!) And, since the money isn’t automatically deducted from your paychecks throughout the year, you’ll have to make and keep track of your estimated tax payments(opens in a new tab) each quarter, too.
People aren’t ready to quit quitting
Perhaps most frustratingly, instead of getting a tax refund like the 9-to-5 crowd, you may actually need to cough up extra money to cover the year’s taxes in case those estimated payments were lower than needed. (You might even be penalized(opens in a new tab) if you neglected to pay them altogether.)
Oh, and don’t forget about the whopping 15.3% federal self-employment tax you’re required to pay. Sure, it goes toward Social Security and Medicare which is cool for Future You — probably maybe? — but not so fun for Current You.
If your head isn’t already swirling from all that tax talk, consider the fact that a QuickBooks survey of 500 freelancers found that doing one’s taxes is among the most difficult challenges facing modern self-employed workers. It’s an obnoxious, tedious ordeal — so obnoxious and tedious, in fact, that more than a third of freelancers don’t even bother paying taxes, according to the same poll.
Since tax evasion is sort of a felony, filing your return every year is in your best interest. However, simply filing your taxes is not enough. If you try to figure it all out on your own, you could still be hit with costly penalties and interest if you make a mistake. On the other hand, you could always go to a CPA and have them take care of your income tax return for you, but their high fees could burn a hole in your pocket, too.
For a happy medium between the two, consider picking up some tax software.
What is tax software?
Tax software is a type of software program that’s designed to guide users through the process of preparing and filing their returns, helping them comply with tax laws while identifying any deductions and credits that may be available. Essentially, it’s software that makes it less taxing to do your own taxes.
Back in the day, tax software came in the form of a CD-ROM that could be downloaded to your desktop computer. (How retro.) Nowadays, you can just download a program from a trusted tax prep company’s website. Or, even better, some tax preparation tools are available completely online or via mobile app for maximum convenience.
What should you look for in a tax software program?
As someone who’s freelancing or self-employed, you need to keep your eyes peeled for a few specific features in your tax software options:
Support for Form 1099-NEC(opens in a new tab) (the non-employee income document you get from your clients instead of a W-2) and Schedule C(opens in a new tab) (the tax form you’ll use to report income and losses/expenses for your business)
An intuitive e-filing process with straightforward questions and prompts
Some sort of accuracy guarantee
A simple, user-friendly interface
Solid customer support, with optional access to a real live tax expert in case of emergency
Don’t forget that you’ll also need to file your state taxes in addition to your federal taxes (unless yours doesn’t collect an income tax(opens in a new tab) — see Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming). Some tax software providers will include one state for free, but most will charge you per state where you need to file. With the growing popularity of remote work, that can really add up.
Also keep in mind that the cheapest tax software option isn’t necessarily the best tax software option. The program you choose should be robust enough to handle complicated tax situations and sniff out tons of possible deductions, and also willing to promise a high-ish level of protection in case you’re audited. In other words, now’s not the time to get stingy: you want to get your taxes done, but also done right. That’s not to say you should pay for features you don’t need, but just make sure your bases are covered, you know?
What’s the best tax software for freelancers?
If you have a pretty straightforward tax situation, if you already have a few years of filing as a freelancer under your belt, and/or if you make under $73,000 a year, you may be able to get away with a free filing option through the IRS’ Free File program(opens in a new tab). However, most freelancers are going to have complicated-enough tax situations to warrant a paid solution with premium features and built-in support from seasoned tax professionals.
Here are the ones we recommend for the 2023 tax season. (Note: All of the following are online products that were live in mid-2022.)