Taxes are complex. As a freelancer, it can be one of the many responsibilities you have to learn to manage for yourself. It can be quite stressful, but it is a responsibility that cannot be overlooked. Dealing with taxes requires detailed and careful planning and precise organisational skills.
Tax laws can differ from country to country and sometimes even state to state. So, it is important to be aware of laws and regulations applicable to a freelancer. As a responsible citizen of a country, it is your duty to file taxes in due time.
Taxation can sometimes even have special laws or regulations when you handle international projects since they involve an international money transfer. There can be different rules and charges with forex income.
A salaried professional may not have to worry about taxes as it is usually discounted before they get their salary. It is also essential to keep all the documents and paperwork organized in advance to avoid missing due dates and late payment penalties. In this article, we will let you know everything you need to know about dealing with taxes as a freelancer:
Track Income and Expense
Income and expense tracking helps you know about your profits and debts. It helps categorize the expenses and distinguish between deductible and non-deductible goods and services. You can keep aside a portion of your income for tax purposes.
If you have multiple modes of accepting payments, say when you receive money from abroad when working for international clients, then tracking can get tricky so think of signing up with online tools to help you save time and effort.
If you can manage your income and budget well, it will make your work a lot easier. Budgeting your freelance income is necessary since there is instability of income. It helps in tracking income, bringing forth your expenses and savings etc.
Remember to keep your personal and business expenses separate. To know more about budgeting, read our blog on financial rules and tips to help with income and expense management. Additionally, if you must travel, rent a space or have any other business expenses, the documents can be used for tax deductions and help lower your income tax.
Filing Taxes
Taxation differs from country to country. There can be special laws and regulations for some countries.
For example, in India, as per the Income Tax laws, anyone generating an income using their intellectual or manual skills is “gains and profits from profession and business”. From the tax perspective, freelancing is treated as a business and profession. Hence, freelancers in India are treated as business and professionals and taxation laws and regulations apply to them accordingly.
So, freelancers come under the purview of Income Tax and GST and anyone with a yearly turnover of more than Rs 20 lakhs is required to register under GST.
Similarly, every country may have their method of categorising freelancers. So, try to understand the laws and regulations of your home country. A point to note here is to only visit the official websites to understand any new regulations or laws and resolve queries. If you seek professional help, remember to do a background check. This ensures there is no misinformation and misunderstanding and there is no case of potential fraud claiming to file taxes and gain exorbitant benefits on returns.
Use Tools and Resources
Nowadays online tools and resources have become very advanced. Whether it is tracking your income and expenses, paying bills, tax detailing and filing, it is all available at the click of a button.
Some tools help you set up reminders to ensure you don’t end up missing deadlines. You can also choose to consult professionals online to understand the tax obligations when filing taxes. Online tax solution is in fact a faster-growing market which means you have plenty of options before selecting the most suitable and helpful one. Using such tools and resources makes the job convenient and time-saving.
In India, the Income Tax Department has added tax tools to further assist the citizens and navigate tax and accounting efficiently.
Summing up
Understanding tax obligations and regulations is not too complex when you have done enough research. Remember to ensure that all your income is declared and other essential details such as the bank account have been reviewed thoroughly and in advance to avoid delaying the process of filing taxes. This is a common mistake that people often make. Additionally, there is the option to hire a professional accountant to assist you deal with taxes. They will help you sort your documents, file taxes, understand legal terms and regulations, and complete taxation before due time. This will be an additional cost in your expenses, but you won’t have to be worried about taxes and it will save you from last-minute stress.
