One of the most complicated parts of transitioning to freelancing full time is learning how to deal with taxes. Every country handles freelance work taxes differently, so you may need to do a lot of research if you don’t want to end up owing money.
Ideally, you’ll find out how to deal with taxes before you transition to freelancing full time. That way, you won’t end up owing your country’s version of the IRS insane amounts of money, and you will be able to budget better from the get-go.
In this article, we’re going to talk about why you should know how to deal with your country’s freelance work taxes. Then we will link you to some data on how countries around the world handle those and talk about what to do if you can’t find the information you need. Let’s talk about finances!
Why You Need to Think About Taxes Before You Start Freelancing
When I started freelancing, I had zero clue about how to deal with taxes. Where I used to live, if you earned anything below X amount per year, you were exempt from taxes, so – having worked only terrible jobs so far – I knew nothing about how to calculate mine.
Once I started pulling in decent money, I had to work out exchange rates, deductions, and more. In the end, I decided to work with an accountant, which is something I should’ve done from the beginning to save myself a lot of headaches. All that mess could’ve been avoided had I done some research before I jumped into freelancing, such as:
- How much would I have to pay in taxes as an independent worker?
- What classification of independent work do I fall into?
- Are there any deductions I can claim for my taxes?
- How and when do I have to make payments?
Luckily, I never ran into any problems with that country’s tax agency, such as owing them money. Then, I moved to Argentina, where taxes are notoriously complex. However, I had learned my lesson by then, so I started researching how the whole thing worked before I set foot in the country.
Even so, I still had to meet with accountants to help me decipher how much money I owed and how to sign up as a taxpayer. Even when you’re willing to pay taxes, a lot of countries make it ridiculously hard to do so, which brings us to the next section.
A Quick Guide to Freelance Work Taxes Across the World
Before we go any further, I cannot emphasize enough the fact that I am not an accountant or an expert when it comes to taxes. The information below was compiled from official sources from several countries, so I encourage you to visit those if you have specific questions.
United States
Freelancers in the United States pay ‘estimated taxes’ four times a year. On top of that, you also have to file tax forms once per year, although if you keep up with your quarterlies, you shouldn’t owe anything on top of those.
United Kingdom
If you earn more than £1,000 per fiscal year as a freelancer, you need to register as self-employed. You can have both a regular job and still be self-employed at the same time if you’re freelancing on the side.
You can use this calculator to work out how much you should expect to pay in income tax and national insurance.
Australia
If you’re earning over $4,000 as a freelancer in Australia, you may have to pay your taxes in installments, similar to the American system.
You’ll also need to register for an Australian Business Number (ABN), which you can get online, as well as submit business activity statements (which can be monthly, quarterly, or yearly).
Canada
In Canada, you pay taxes on any freelance income you earn, without a minimum amount. If you’re working using your own name, you don’t need to register a business to pay taxes, unlike in other countries.
As a rule of thumb, you should set aside around 25% of your income for freelance work taxes if you’re operating in Canada.
What to Do If You Can’t Find Information on Your Country’s Freelance Work Taxes
You’ve probably noticed I’ve mentioned the word ‘accountant’ several times during this article. If you’re anything like me, you can benefit from working with an accountant to help you sort out your tax situation.
Sure, you can find all the information you need online in most countries. However, a good accountant will be able to guide you through the process much more effectively. They can help you work out exactly how much you owe and what you can deduct. More importantly, they save you a lot of time which you can otherwise spend working, finding new clients, and doing all those other fun things in life that have nothing to do with taxes.
If you’re new to freelancing, you might not be able to afford an accountant. However, chances are you might be able to at least get a free consultation with someone so they can tell you if you’re doing something wrong. If you think they can help you, I recommend you find the room in your budget to hire them, because it’s one of the best investments you can make as an independent worker.
Once you know your way around your country’s tax system, then you’ll be able to handle taxes on your own. Just remember to set aside enough money to cover them!
Conclusion
Taxation is never the most exciting subject. However, it is something all of us have to deal with, whether we’re working regular office jobs or freelancing. The only difference is dealing with freelance work taxes tends to require a little more planning on your end.
In most cases, I recommend you consult an accountant who can give you a crash course on your country’s tax code. However, if that’s not an option, you can always find the information you need online or ask local freelancers how they deal with taxes.
What are freelance work taxes like where you live? Share your experience with us in the comments section below!