First year freelancing: a tax checklist

Your first year as a freelancer or contractor is when most tax surprises happen, usually a big bill in April. This checklist covers what to set up and what to do each month.

When you start

• Decide how to get paid. As a sole proprietor you can use your Social Security number. Many freelancers get a free EIN from the IRS website instead, so they don’t have to give their SSN to every client.
• Fill in W-9s for clients who ask. That’s how they report what they paid you.
• Open a separate bank account for business income and expenses. It makes records much easier.
• Open a tax savings account. A high-yield savings account works well.
• Check local rules. Some cities and states require a business license or registration.
• Pick a way to track expenses: a spreadsheet, an accounting app or a receipts folder.

Every time you’re paid

• Move your set-aside percentage into the tax account. Find your percentage. It’s often 15–25% for federal tax, plus your state’s rate.

Every month

• Save receipts and note what each expense was for.
• Update your mileage log if you drive for work.

Every quarter

• Pay estimated tax by the due dates: April 15, June 15, September 15 and January 15.

First-year tip: the penalty safe harbor lets you pay based on last year’s total tax. If you had a W-2 job last year, that number may be low. And if you owed no tax at all last year (and were a US citizen or resident all year), you generally won’t owe an underpayment penalty this year. You’ll still owe the tax itself in April, so keep saving.

Before you file

• Collect 1099-NEC and 1099-K forms, but report all income, including payments without a form.
• Total your expenses by category for Schedule C.
• Consider a SEP-IRA or Solo 401(k) contribution to lower income tax.
• If you paid for your own health insurance, check the self-employed health insurance deduction.

Things that can wait

• LLC: it doesn’t change federal taxes on its own. It’s mainly about liability protection and state fees.
• S-corp: can save self-employment tax, usually only once profit is well into five figures, and it adds payroll costs.

See the deductions checklist for write-offs to track from day one.