How should I file my taxes as a freelancer with a side consulting business?

Hey everyone, I'm about to start a small consulting business on the side while keeping my day job, and I'm completely lost about how to handle taxes. I'm taking on my first client soon who wants to hire me as a consultant for a few months at an hourly rate. This is really just a side hustle alongside my full-time employment, but I'm hoping to pick up more short-term projects like this in the future. Each gig would probably last a few months at most. I have no clue what I'm doing when it comes to freelancing/independent contracting or if that's even the right approach for me. Should I consider myself a freelancer? How do I handle taxes if I go that route? Or would it be easier to just let my client hire me as a temporary employee to avoid tax headaches? Any advice would be super appreciated!

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18 comments

Edwards Hugo

•8M

Congrats on your new venture! You're definitely a freelancer/independent contractor in this situation. Since you'll be doing this alongside your regular job, here's what you need to know: You'll need to file Schedule C with your tax return to report your business income and expenses. Your client should provide you with a 1099-NEC form showing what they paid you (if it's over $600). The big difference from regular employment is that you'll need to pay both halves of Social Security and Medicare taxes (called self-employment tax) which is about 15.3%. Plus you'll pay regular income tax on your profits. Start tracking ALL business expenses - they'll reduce your taxable income. This includes home office (if you have a dedicated space), software, travel to client sites, professional development, etc. Consider making quarterly estimated tax payments to avoid an underpayment penalty next April. The IRS doesn't like waiting until tax time to get your money!

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Edwards Hugo

•8M

You can absolutely operate as a sole proprietor without forming an LLC - just report everything on Schedule C. It's the simplest approach for a side business, and you don't need any formal business registration to do this at the federal level. For state requirements, it varies significantly depending on where you live. Some states require you to register your business and get a license even for sole proprietorships, while others don't for small operations. You should check your specific state's department of revenue website or small business administration resources to see what's required. You'll generally need to pay state income taxes on your business profits through your personal state tax return.

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Alfredo Lugo

•8M

I was in your exact shoes last year - totally confused about taxes as a new freelancer. I found this amazing service called taxr.ai (https://taxr.ai) that honestly saved me so much stress. After trying to make sense of all the tax regulations myself, I uploaded my documents there and it analyzed everything and explained exactly what forms I needed and what deductions I qualified for as a freelancer. It specifically helped me understand how to handle having W-2 income alongside my freelance 1099 work, which sounds like your situation too. The best part was it showed me exactly how to track expenses properly to maximize deductions - I had no idea how many things I could actually write off!

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Alfredo Lugo

•8M

It's not just software - it actually analyzes your specific situation and documents, then provides personalized guidance. While it doesn't replace a CPA, it gives you professional-level tax advice tailored to your circumstances, especially helpful for freelancers. Regarding quarterly payments, it was super helpful with that too! It helps you calculate the right quarterly payment amounts based on your projected income. You can update your income information throughout the year, and it adjusts your estimated payment recommendations accordingly. I found this especially useful since my freelance income fluctuates a lot month to month.

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Kaitlyn Jenkins

•8M

Just wanted to update that I tried taxr.ai after seeing the recommendation here, and it was exactly what I needed! I uploaded my W-2 from my day job and some initial contracts from my freelance work, and it immediately identified that I needed to start making quarterly payments. It even generated a complete tax planning guide showing what percentage of my freelance income I should set aside. The best feature was the expense tracking guidance - it flagged a bunch of things I could legitimately deduct that I would have totally missed. Saved me hours of research and probably a lot of money too. Definitely worth checking out if you're juggling a regular job with freelance work!

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Caleb Bell

•8M

Listen, one thing nobody's mentioned yet is how impossible it is to get actual help from the IRS when you have questions. I spent THREE HOURS on hold last year trying to figure out my estimated payments as a new freelancer. Then I found Claimyr (https://claimyr.com) and they got me through to an actual IRS agent in about 15 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c I was skeptical at first but desperate after waiting on hold for hours over multiple days. But man, being able to actually talk to someone at the IRS made such a difference - they walked me through exactly how to handle my situation with both W-2 and 1099 income. Saved me a ton of stress and probably kept me from making expensive mistakes.

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Caleb Bell

•8M

It works by using technology to navigate the IRS phone system and wait on hold for you. When they reach a live agent, you get a call back connecting you directly. It's not magic - they're just handling the painful wait time so you don't have to sit there listening to hold music for hours. Yes, it absolutely works. I was super skeptical too until I tried it. The difference is that their system can simultaneously try multiple IRS phone lines and times of day to find the shortest wait, something we can't do manually. I know it sounds unbelievable after experiencing the normal IRS wait times, but that's precisely why the service exists.

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Rhett Bowman

•8M

I owe everyone here an apology. After being completely skeptical about Claimyr, I tried it this morning because I had tax questions about my new consulting income. I'm still in shock that it actually worked. After trying for DAYS to reach someone at the IRS on my own (and never getting through), I got a call back within about 20 minutes connecting me to an actual human at the IRS. The agent answered all my questions about estimated payments and tracking business expenses when you have both W-2 and self-employment income. I learned I needed to use Form 1040-ES for my quarterly payments and got clarity on home office deductions. This legitimately saved me hours of frustration and probably hundreds in potential penalties from doing things wrong.

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Abigail Patel

•8M

Don't overlook state and local taxes! Depending on where you live, you might need business licenses or permits even for freelance work. I got hit with a fine in my city because I didn't get a business license, even though my "business" was just me doing graphic design on the side. Also, track EVERYTHING. I use a separate credit card for all business expenses so they're easy to separate at tax time. And set aside way more than you think you need for taxes - like 30% of every payment. Better to have extra money than to come up short.

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Abigail Patel

•8M

You don't absolutely need a separate bank account from a legal standpoint if you're a sole proprietor, but I highly recommend it. Having a dedicated business account makes it so much easier to track income and expenses cleanly, and it looks more professional when clients pay you. If you ever get audited, having separate accounts makes it much easier to prove which transactions were business-related. It's also helpful for calculating your actual profit each month. Most banks offer free or low-cost business checking accounts for small businesses, so there's really no downside to setting one up.

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