Why freelancers overpay (or underpay) without realizing it
The generic advice is "set aside 25-30% of everything." That's a decent emergency rule, but it's often too high once you factor in real business deductions, the standard deduction, and the 20% QBI (Section 199A) pass-through deduction that most freelancers qualify for and most free calculators ignore. This tool includes QBI by default, so the number you get is much closer to what you'll actually owe.
Deductions freelancers often miss
- Home office deduction — a portion of rent/mortgage, utilities, and internet for space used regularly and exclusively for work.
- Software and subscriptions — design tools, project management, hosting, AI tools, stock assets.
- Self-employed health insurance premiums — often a large above-the-line deduction if you buy your own coverage.
- Retirement contributions — a SEP IRA or Solo 401(k) can shelter a meaningful chunk of profit from income tax (does not reduce self-employment tax).
- Equipment — laptop, monitor, camera, microphone, ergonomic gear.
- Professional development — courses, conferences, books directly related to your work.
- Portion of phone and internet bills used for client work.
Retirement contributions and self-employed health insurance reduce your income tax but not your self-employment tax — this calculator gives a baseline before those two, since they depend on choices you make separately.
FAQ
What if my income is irregular month to month?
Estimate using your expected total for the full year and divide it into four payments. If a quarter comes in much higher or lower than expected, you can adjust the next quarter's payment instead of waiting until April.
What happens if I underpay?
The IRS can charge an underpayment penalty (calculated roughly like interest) if you pay too little throughout the year, even if you pay the full balance by April. Paying close to the right amount each quarter avoids this.
Do I really need an LLC to deduct these things?
No. Sole proprietors filing a Schedule C get the same deductions as an LLC taxed the same way. An LLC is mostly about legal liability protection, not extra tax deductions.