Freelance taxes: why most advice is useless and how to avoid my mistakes

It’s so easy to give flippant tax advice.

By Shea Lord |
March 25th, 2023

Freelance taxes: why most advice is useless and how to avoid my mistakes

It’s so easy to give flippant tax advice.

By Shea Lord |
March 25th, 2023

Note: Sorry in advance to non-USA readers. Our tax system is archaic and needs to be discussed.
Read time: 4 minutes

It’s so easy to give flippant tax advice. Here are your actionable steps:

  • “Always pay quarterly taxes”
  • “Be organized”
  • “Get a CPA”
  • “Form an S-Corp”

But that’s like saying:

  • “Only work with clients you love”
  • “Never work for less than you’re worth”
  • “Make personal projects”
  • “Have savings”

It’s all good advice. For some people, it is this simple.

But if it were that easy for everyone, 11.23 million Americans wouldn’t be carrying tax debt. And we would all have perfectly fulfilling, financially secure, independent creative careers.

The Cash Flow Problem

Traditionally, small business loans kickstart most entrepreneurial ventures.

  • Taking on huge debt to provide cash flow is normal in the US.
  • Then it takes 3 years for most businesses to become profitable.

Freelancers don’t typically get small business loans, but it can still take 3 years to find solid ground, financially.

  • Plus, income can change drastically from quarter to quarter

If Q1 is slow, you might need some of the cash that would normally go to taxes to carry you over to a more profitable Q2—where you can set aside a larger amount.

  • This is not tax advice. This is not “good advice.”
  • This is what freelancers often do to survive. It’s a reality.

The Quarterly Taxes Problem

If you don’t pay quarterly estimates, you pay a fine on top of the lump sum you owe come tax day.

  • The penalty is 0.5% of the amount unpaid for each month that the tax isn’t paid.
  • If you make 120k/year, your fine will be $60

$60 for cash flow throughout the year? Absolutely worth it.

The Organization Problem

There’s no good excuse for being unorganized—except that you have to know what to expect before you can prepare for it.

  • If you’ve just started freelancing, ask a more seasoned peer what to keep track of.
  • Everyone’s method is different. Find one that works for you.
  • Recognize that your clients will often be unorganized and that you will have to make up for that.

The CPA Problem

CPA vs CTA vs Tax Preparer

  • CPAs (and CAs) have advanced accounting degrees. You probably don’t need one.
  • CTAs take tax prep courses. They’re tax specialists and more affordable. Good if your business gets complicated.
  • Tax Preparers can be all of the above or just anyone with an IRS-issued Preparer Tax Identification Number (PTIN). Potentially the cheapest option for professional help.

But if your business is still relatively simple (no employees, subcontractors, multiple income streams…) then TurboTax does a fine job and will be the cheapest option by far.

  • TurboTax is actually an incredible piece of software.
  • I’ve never had trouble finding all possible deductions, which was verified when I started using a tax preparer.

So my tax specialist doesn’t save me money.

  • But she does save me time and ensures all my weird life events and business happenings are accounted for properly.
  • It’s worth it now, but I’m glad I didn’t get one to start.

The S-Corp Problem

This is also the Roth-IRA problem. And the HSA problem. Etc.

The idea is that you can pay less on taxes if you simply put a chunk of your revenue into some kind of pre-tax account (which is often taxed at a later date).

  • Then you are only accountable to pay taxes on the “salary” you take.

But 60% of us are living paycheck-to-paycheck. 51% of us have less than $5,000 in savings—and that’s for emergencies.

  • Putting any significant chunk of revenue somewhere it can’t be touched is simply not an option.

The best tax-saving methods are out of reach for most people.

What happens when you can’t pay?

You go on a payment plan. Pretty simple.

  • If you owe more than $50,000 the IRS can take a lien on your property.
  • Get it below 50k, call them, they remove the lien.
  • If you avoid paying, or make false claims, you can be looking at big trouble.

Something else a tax specialist can do for you: advocate for you to the IRS.

  • Trust me, getting a rep on the phone is a miserable task.
  • My preparer has helped waive the no-quarterly-payments fine as well.

How to avoid my mistakes

  1. Recognize that your position is unique and gameplan accordingly
  2. Work taxes into your budget—know how much you actually have
  3. Include taxes when you’re quoting projects !!
  4. Figure out how much to set aside by estimating your annual income and looking up your tax bracket (or ask a specialist)
  5. Pay attention, don’t land in a higher bracket without noticing 🤦‍♀️
  6. Don’t forget about state taxes on top of the federal
  7. Pull the tax percentage out of each paycheck immediately on deposit, put it into a separate account
  8. Work toward being able to apply all of that “good advice” above

Everyone’s freelance career starts differently. Some jump in with clients already in the wing. Or they have savings. Or a supportive partner/parent. Or another job.

But some people start in the deep end. And they have to keep swimming for a long time before they can wade through the obvious stuff.


A quick story if you’re still reading

If you follow US politics, you may know Stacey Abrams as someone shortlisted for VP on the Biden ticket in 2020.

She’s a baddie with an interesting background.

  • Abrams earned a $150k book advance as a romantic novel author
  • Then she spent it on her family’s medical bills
  • Couldn’t cover the taxes and had to go on a payment plan
  • Also carried over $100k in student loan debt
  • Paid it off in 2019

My point is: every level of society, even a brilliant White House contender, deals with debt and tax burdens. If you’re not an Abrams fan, you can probably still appreciate the effect Donald Trump’s taxes have had on his campaigns.

Bottom line: Often, debt is a required risk for climbing out of your circumstances. Taxes play their role here too.

If you’re starting with little or nothing…

If you have more people to care of…

If you have to make tough calls and take big risks…

If you are carrying tax debt…


You’re not alone.