Why Saving Money for Your Taxes Year Round is Worth It

As a gig worker, you are not an employee of the companies your work for but rather an independent contractor. Your status as an independent contractor means that your clients or gig assignments do not withhold money from your paycheck for federal, state, social security, or Medicare taxes. Although saving money for taxes can be challenging, you must make federal and state tax payments once per quarter. State taxes do not apply if you live in one of the nine states that does not collect income tax.

Your accountant or tax software determines the amount you owe for social security and Medicare when you file your tax returns early the following year.

How much should you save for taxes?

The amount of federal and state income tax you pay depends on your tax bracket. You can use your earnings from previous years to gauge how much you might make this year. Keep in mind that most taxpayers qualify for a standard deduction that reduces their taxable income. The lowest tax bracket is 10 percent, and the highest is 37 percent.

The Internal Revenue Service (IRS) requires freelance workers to pay quarterly taxes if they would expect to owe at least $1,000 at the end of the year. You can click on the link above to see where your projected income falls within that range.

Remember to take deductions to lower your tax burden

While it is always better to save too much rather than too little for taxes, the amount you must pay could be lower than you think due to self-employed business deductions. For example, you can deduct the amount you paid for a uniform to work at a gig assignment or the cost of maintaining a home office. Be sure to check this IRS Guide to Deducting Business Expenses to help you plan accordingly.

Paying taxes as an independent worker can seem overwhelming at first. However, it does not have to be when you use the many savings and budgeting tools available to you.

About the Author: Lisa Kroulik has worked as a freelance content marketing writer for 10 years. She loves the work and the lifestyle it affords. Learn more about Lisa’s work and availability through Writer Access.