💼 Freelancing and taxes: how to pay correctly
Anyone who has ever dreamed of working without an alarm clock and strict schedules has imagined the freedom that freelancing offers. But with all its advantages, the question of how to pay taxes correctly can ruin all the enthusiasm. When working freelance, you choose your own place of work and schedule, but this also imposes on you the responsibility for reporting to the tax service. How not to get confused in paperwork and not lose income? Taxes are not only an obligation, but also an opportunity to demonstrate professionalism in work. Paying taxes helps a freelancer not only stay within the legal framework, but also build trusting relationships with clients, which is especially important for international contracts. Let's talk in more detail about how to approach this issue correctly.
💡 The importance of choosing a form of payment
How a freelancer formalizes his/her activity directly affects the procedure for paying taxes. One of the most important questions: is it worth registering as an entrepreneur? The decision depends on the regularity of income. If earnings are episodic, registering as an individual entrepreneur may be unnecessary. But when income becomes stable, this form of activity opens up new opportunities for simplified taxation.
📊 Table: Advantages of different forms of work
| Form of work | Description | Features of taxation | Rating |
|---|---|---|---|
| Individual entrepreneur (IE) | For a permanent income | Simplified system, choice between 6% and 15% | ⭐⭐⭐⭐⭐ |
| Civil contract | For one-off jobs | Personal income taxes, no ongoing contributions | ⭐⭐⭐⭐ |
| Self-employed | For small incomes | Taxes 4-6%, no mandatory contributions | ⭐⭐⭐⭐ |
The choice of system determines what taxes you will have to pay. For example, if you work through an individual entrepreneur, you can choose between a 6% tax on all income or 15% taking into account expenses. On the other hand, working under a civil law contract is also convenient, especially if your income does not exceed certain thresholds.
🔍 What is the penalty for not paying taxes?
There is an opinion that freelancing is a way to “go shadow” and work without reporting. However, this is a risky path. Working without registration can lead to trouble. If the regulatory authorities find that you are receiving income without paying taxes, you face a fine. The fine can be up to $2,000, but this amount varies depending on the situation and the country. In addition, do not forget about the possibility of additional taxes for previous periods, which can be an even more unpleasant surprise.
🛠 Risks of “black” work:
- There is a high probability of not receiving payment.
- Fines and additional charges.
- Reputational losses and lack of trust from customers.
Therefore, in order to avoid such problems, it is better to understand the taxation issue in advance. This will also allow you to build trusting relationships with customers.
🔄 What to choose: 6% or 15%?
The decision on the tax system depends on your expenses. If you do not have significant expenses, choose 6%. This rate applies to all revenue, excluding expenses. However, if you have significant expense items (for example, travel, equipment or software for work), the 15% rate will be more advantageous. With its help, you can take into account expenses and pay tax only on net profit.
Examples of expenses that may be taken into account:
- Costs of transport or petrol.
- Subscriptions to software or services for work.
- Equipment for the job, such as a computer or specialized tools.
Choosing the right tax system allows a freelancer to save money and avoid unnecessary overpayments.
📝 How to avoid problems with contracts?
Every freelancer sooner or later faces a situation when the work is done, but payment cannot be received. To avoid this, always sign contracts with customers. The contract not only sets out the terms of cooperation, but also protects your rights. Without legally executed documents, it will be difficult to defend your position if a dispute arises.
What should be in the contract:
- Precise deadlines for completion of work.
- Clear description of tasks and stages.
- Payment terms, including prepayment and payment terms.
The contract will also help to establish a trusting relationship with the client and avoid many misunderstandings. In practice, the clearer the terms are, the less chance there is of conflict situations arising.
⁉️🤔 Popular questions and answers
- What tax should a freelancer pay when working with foreign clients?
Depending on the country in which the freelancer is registered, different tax rates apply. It is important to take into account the legislation of both the customer's country and the country of residence.
- Is it possible to work based on a verbal agreement?
It is possible, but it is risky. Without a written contract, it is difficult to prove the fact of work being done in case of a dispute.
- What to do if your freelance income is irregular?
In such cases, you can work as a self-employed person or under civil law contracts.
- How to avoid fines for non-payment of taxes?
Filing your tax returns and paying your taxes on time is the best solution. It helps avoid unpleasant consequences and additional charges.
- Is a contract required with each client?
It is advisable to conclude an agreement for each project in order to clearly establish the terms of cooperation.
- What is 3-NDFL?
This is a tax return form filed by individuals to pay taxes on income not withheld by their employer.
- How to prepare documents for the tax authorities if work is carried out from different countries?
It is important to file reports in accordance with the laws of the country in which the freelancer is registered and to take into account international agreements to avoid double taxation.
💎 Results and conclusions
Freelance work provides freedom and flexibility, but requires attention to tax issues. Registration of activities, choice of tax system and competent execution of documents are key points that help to avoid risks and fines. The better you understand these issues, the more time you can devote to business development, and not to proceedings with the tax service.