Your First Year Freelancing: A Tax Timeline
What to do in month one, what to do each quarter, and the two mistakes that turn a good first year into a bad April.
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Nobody hands you a checklist when you go freelance. Here is the one.
Month one
Open a separate bank account. Not later. This single habit does more for your tax year than anything else — it turns bookkeeping from an archaeology project into a reconciliation.
Start a second savings account for tax. Every time a client pays, move a percentage across immediately. Before it feels like yours.
Keep every receipt from day one. Startup costs incurred before your first invoice are usually deductible. Most people throw these away and find out in April.
You are already a business
No registration is required to be a sole proprietor. You became one when you took paid work. An LLC is a separate, optional decision about liability — worth reading about, not urgent in week one.
The percentage to set aside
Start at 30% of profit and adjust once you have real numbers.
That sounds high if you are used to a payslip. It is not: it covers self-employment tax at 15.3% plus federal income tax, and it does not include state tax.
Set aside 30%, run the quarterly calculator after your first full quarter, and lower it if the real figure is lower. Adjusting down is painless. Discovering you set aside too little is not.
When quarterly payments start
Once you expect to owe $1,000 or more in federal tax for the year after withholding and credits, estimated payments apply.
If you had a salaried job earlier in the same year, two things help:
- Your withholding from that job counts, and counts as if spread evenly
- Your prior-year tax may be low, making the prior-year safe harbour cheap
The first-year advantage worth knowing
The safe harbour lets you pay 100% of last year's tax — 110% if last year's AGI topped $150,000 — and owe no penalty however much you make this year. Someone whose previous year was a modest salary can have a very low bar to clear while their freelance income grows.
The quarterly rhythm
Four times a year, block fifteen minutes:
- Reconcile the business account — every line is income, expense, or transfer
- Run the calculator with current figures
- Pay via Direct Pay
- Pay your state separately
- Log the confirmation numbers
Dates are 15 April, 15 June, 15 September, and 15 January of the following year. The periods are not equal lengths — Q2 is only two months.
The two mistakes
Treating revenue as income. What clients paid you is not what you earned, and neither is what you earned what you keep. Gross receipts minus expenses is profit; profit minus tax is yours. People who track the first number and spend against it have a bad April.
Waiting until April to think about it. Most of the mechanisms that help — meeting the safe harbour, timing a purchase, adjusting a spouse's withholding, a solo 401(k) deferral election — have to happen before 31 December. IRA and SEP contributions can wait until you file, but by then most of your options are gone.
Before 31 December
- Decide on retirement contributions. A first solo 401(k) can now be opened up to your filing deadline, but an existing plan's employee deferral election is generally due by 31 December
- Buy equipment you genuinely need, if the deduction is useful this year
- Check whether a spouse's withholding can repair an underpayment
- Reconcile everything while you still remember what the payments were
What to hand your accountant, if you use one
A profit and loss summary, business bank statements, 1099s received, mileage total, home office measurements, and a list of asset purchases.
Handing over a shoebox costs you money — accountants bill for sorting. The reconciliation is the same work either way; doing it yourself is just cheaper.