Freelance life incurs burden at tax time

Tax time is usually a difficult period for freelancers when it comes to compliance, but there is some good news this year.

Many freelancers say they would rather line up at the DMV or get a root canal than do their taxes, according to a study by FreshBooks, which offers accounting services and surveys self-employed professionals.

“Freelancers take three times as long to file as traditional employees,” said Carly Moulton, a spokeswoman for FreshBooks.

Half of freelancers say “there is no simple, consistent tax-filing process for the self-employed, so freelancers have to work harder to get the returns owed them,” according to FreshBooks.

And there’s often another scary surprise for the freelancer, said a tax adviser.

“Independent contractors face higher taxes and more recordkeeping duties than employees. There are special circumstances that apply to freelance writers and other independent professionals,” said Jonathan Medows, a Manhattan CPA. His firm specializes in the problems of freelancers.

“When you work for yourself, you work 24/7,” Medows said, “and, unfortunately, tax compliance is part of it. You’re the chief bottle washer. You have to do everything; you have to build and keep the financial records and pay your taxes.”

This comes at a time when freelancer numbers are growing.

Some 27 million Americans will leave full-time jobs from now through 2020, bringing the total numbers of self-employed to 42 million, FreshBooks said.

Despite potential tax compliance problems, Medows believes that “this is the best time to be a freelancer.” He and other advisers point to one of the provisions of the recent tax cut. It allows most freelancers to exempt 20 percent of profits from taxation using flow-through deductions.

Here are some tips for avoiding freelancer tax woes from accountants polled:

Pay quarterly estimated taxes.

Rule of thumb: Put aside a third of your income. Keep good financial records. Keep original receipts for an audit.