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Streamline your freelance tax management with Hourly: A guide for US freelancers

As a freelancer in the United States, managing your taxes can be a daunting task, particularly when you have clients across different states and countries. With various tax rules and currencies to consider, it's essential to have a tool that simplifies tax management and ensures compliance.

Hourly, a comprehensive freelancing app, can help you navigate the complexities of US tax rules and seamlessly manage your freelance business. In this blog post, we'll discuss how Hourly assists with tax management and the tax rules you need to keep in mind as a US freelancer.

Setting tax rules for clients with Hourly

Hourly allows you to set tax rules for each of your clients, making it easy to manage your taxes and stay compliant. You can categorize your clients as Taxable (+ tax rate) or Non-taxable, depending on their location and the services you provide.

  • Taxable clients: For clients within the US, you may need to charge sales tax based on the state where your clients are located. With Hourly, you can set the tax rate for each client, and the app will automatically calculate and include the sales tax in your invoices.

  • Non-taxable clients: If you're providing services to clients outside of the US, you generally don't need to charge sales tax. Hourly allows you to mark these clients as non-taxable, ensuring that your invoices are generated without sales tax.

Handling different currencies

Hourly simplifies the process of dealing with multiple currencies by allowing you to set the currency for each client. For example, you may have clients in the United States using US dollars (USD), clients in the United Kingdom using pounds sterling (GBP), and clients in the European Union using euros (EUR). Hourly will automatically convert your hourly rates and invoice amounts to the appropriate currency for each client, making it easy to manage your international business.

Tax rules to keep in mind as a US freelancer

  • Self-employment tax: As a freelancer, you're responsible for paying self-employment tax, which covers Social Security and Medicare taxes. You'll need to pay this tax if your net earnings from self-employment are $400 or more in a year. Hourly can help you track your earnings, making it easier to calculate your self-employment tax obligation.

  • Income tax: Freelancers are also subject to federal and state income taxes. Be sure to set aside a portion of your earnings to cover these taxes, and consider making estimated tax payments throughout the year to avoid penalties.

  • Sales tax nexus: Each state has its own sales tax rules, and you may be required to collect sales tax if you have a sales tax nexus in a particular state. This can include having a physical presence, such as an office or warehouse, or an economic nexus, which is based on your sales volume or revenue within the state. Be sure to familiarize yourself with the sales tax rules in the states where your clients are located and adjust your tax settings in Hourly accordingly.

  • Record keeping: As a freelancer, you're required to keep records of your business transactions, including invoices and receipts, for at least three years (and up to seven years for certain records). Hourly makes it easy to maintain these records by storing your invoices and client information securely within the app.

Navigating the complexities of US tax rules can be challenging for freelancers, but with Hourly, you can simplify tax management and ensure compliance. By setting tax rules for each client, managing different currencies, and keeping track of essential tax information, Hourly is an invaluable tool for US freelancers looking to streamline their tax processes and focus on growing their business.

  1. Self-employment tax: Internal Revenue Service (IRS) - https://www.irs.gov/businesses/small-businesses-self-employed/self-employment-tax-social-security-and-medicare-taxes

  2. Income tax for self-employed individuals: Internal Revenue Service (IRS) - https://www.irs.gov/businesses/small-businesses-self-employed/self-employed-individuals-tax-center

  3. Estimated tax payments: Internal Revenue Service (IRS) - https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes

  4. Sales tax nexus: Sales Tax Institute - https://www.salestaxinstitute.com/resources/what-is-sales-tax-nexus

  5. Record keeping for businesses: Internal Revenue Service (IRS) - https://www.irs.gov/businesses/small-businesses-self-employed/recordkeeping

Please note that the information provided in the article is for general guidance and may not cover all specific situations or nuances. Freelancers should consult with a tax professional to ensure they are fully compliant with US tax laws and regulations.