Being self-employed as a student shows a lot of flexibility, permitting you to make money while handling your studies. However, with that flexibility comes the commitment to handling your taxes. Self-employment income varies from a traditional part-time job because you’re considered self-employed, which suggests you’re accountable for handling your taxes. Here’s how to hold your self-employment taxes as a student and ensure you’re on the right side of the law.
Understand Your Tax Obligations
However, this includes both income tax and self-employment tax. Self-employment tax covers Social Security and Medicare taxes, typically removed from wages in a traditional job. The IRS requires self-employed workers to file income tax returns if they earn $400 or more yearly, even if they’re students. It’s important to understand that even if you’re in school and earning a part-time salary, you still need to file your freelance income tax returns.
Keep track of your income and expenses.
As a self-employed person, focusing on the work and not tracking the money can be attractive, but keeping good records is essential. You should keep track of all payments you receive for your freelance work. Besides, you can remove business-related payments from your taxable earnings. These could be costs such as software, equipment, office supplies, or even working from home (if applicable). The more accurate your records are, the easier to file taxes when tax season rolls around.
Set Aside for Taxes
Unlike a regular job where taxes are automatically deducted from your paycheck, you are responsible for setting aside money for taxes as a self-employed person. However, a useful rule of thumb is to put aside 20 to 30 per cent of your earnings for taxes. You may want to start a separate savings account just for taxes so you don’t accidentally spend the money you need for your tax payments. Saving money regularly will help you avoid the shock of a large tax bill at the end of the year.
Use Tax Software or Hire a Professional
As a student, you may not have a deep understanding of taxes. Consider using tax software like TurboTax, H&R Block, or other online tools designed for self-employed people to make filing easier. These platforms offer step-by-step guidance, helping you correctly claim deductions, track your income, and file forms. If your finances are more complex or you earn a significant income as self-employed, you may hire a tax professional to help you file your taxes.
Pay estimated taxes quarterly
Self-employed people must typically pay taxes quarterly and make estimated tax payments yearly. These payments cover your income and self-employment taxes, so you don’t owe everything at once during tax season. The IRS provides a calendar and online payment portal for quarterly tax payments. Missing a payment can result in penalties, so pay on time. Even if your income is low, paying estimated taxes can help you avoid penalties in the future.
Understanding Student Tax Credits and Deductions
As a student, you may be eligible for certain deductions or tax credits that can reduce your taxable income. For example, the IRS offers education tax credits like the American Opportunity Tax Credit (AOTC) or the Lifetime Learning Credit (LLC), which help reduce the tax you owe based on your tuition and other education-related expenses. Research these credits or consult a tax professional to maximize your savings.
Conclusion:
In conclusion, managing taxes as a self-employed student can seem complicated, but you can manage your responsibilities effectively with the right approach. Start by understanding your tax obligations, tracking your income and expenses, and setting aside money for taxes. Use tax software or seek professional advice to ensure your taxes are filed correctly, and pay estimated taxes quarterly to avoid penalties. By staying organized and proactive, you can successfully manage your taxes as a self-employed person while continuing to focus on your studies.
