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Paying Taxes as a Freelancer

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The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

Paying taxes as a freelancer can be a bit more involved—and expensive—than paying taxes as a W-2 employee. When you’re a freelancer, you’re the boss. That’s great if you want some flexibility, but it also means you’re self-employed, so you are responsible for both the employer and employee parts of employment taxes.

When you work for someone else, your paycheck amount is your pay minus all appropriate deductions. That includes deductions for federal and state income taxes as well as Medicare and Social Security contributions.

But what you might not realize is that your employer covers part of the Medicare and Social Security amounts. As a self-employed individual, you have to pay the total amount yourself. That’s 12.4 percent for Social Security and 2.9 percent for Medicare—a total of 15.3 percent of your taxable earnings, not including federal and other income taxes.

When Do I Have to Start Paying Taxes as a Freelancer?

According to the Internal Revenue Service, if you earn $400 or more in a year via self-employment or contract work, you must claim the income and pay taxes on it. The threshold is even lower if you earn the money for church work. If you earn more than $108.28 as a church employee and the church employer doesn’t withhold and pay employment taxes, you must do so.

What Tax Forms Should I Know About?

Freelancers report their income to the IRS using a Form 1040, but they may need to include a variety of Schedule attachments, including:

  • Schedule A, which lists itemized deductions
  • Schedule C, which reports profits or losses from their freelancer business
  • Schedule SE, which calculates self-employment tax

These are only some of the forms that might be relevant to a freelancer filing federal taxes. Freelancers must also file a tax form for the state in which they live as well as with any local governments that require income tax payments.

If you’re planning to do your taxes on your own as a freelancer, it might be helpful to invest in DIY tax software. Look for options that cater specifically to home and business or self-employment situations. These software programs typically walk you through a series of questions designed to determine which forms you need to file and help you complete those forms correctly.

Six Tips for Doing Your Taxes as a Freelancer

As a freelancer, chances are you spend a lot of your time attending to clients and getting production work done. You may not have a lot of time for business organization tasks such as accounting. But a proactive approach to paying taxes as a freelancer can help you prepare to do your taxes and pay what can be a surprisingly big bill each year.

Here are six tips for handling taxes as a freelancer.

1. Keep Track of Your Income

Track your income so you know how much you may need to pay in taxes every year. Keeping track of your numbers also helps you understand whether your business is profitable and how you’re doing with income compared to past years.

You can track your income in a number of ways. Apps and software programs such as QuickBooks and Wave let you manage your freelance invoices and track income and expenses. Some also help you generate financial reports that might be helpful come tax time.

Alternatively, you can track your income in an Excel spreadsheet or even a notebook, as long as you’re consistent with writing everything down.

2. Set Money Aside in Advance

It’s tempting to count every dollar that comes in as money you can use. But it’s wiser to set money aside for taxes in advance. Depending on how much you earn as a freelancer, you could owe thousands in federal and state taxes by the end of the year, and if you didn’t plan ahead, you might not have the money to cover the tax bill.

That can lead to tax debt that comes with pretty stiff penalties and interest—and the potential for a tax lien if you can’t pay the bill.

3. Determine Your Business Structure

Make sure you know what your business structure is. Many freelancers operate as sole proprietorships. But you might be able to get a tax break if you operate as an LLC or a corporation. Talk to legal and tax professionals as you set up your business to find out about the pros and cons of each type of organization.

4. Know About Relevant Deductions

As a freelancer, you may be able to take certain federal tax deductions to save yourself some money. Tax deductions reduce how much of your income is considered taxable, which, in turn, reduces how much you owe in taxes. Here are a few common deductions that might be relevant to you as a freelancer.

Home Office

You can take the home office deduction if you’ve set aside a certain area of your home for use by the business. The IRS does have a couple of stipulations.

First, you have to regularly use the space for your business, and it can’t be something you use regularly for other purposes. For example, you can’t claim your dining room as a home office just because you sometimes work from that location.

Second, the home has to be your principal place of business, which means it’s where you do most business activity. You can’t claim the deduction if you normally work outside the home but sometimes answer work emails while you’re in the living room.

Equipment and Supplies

You can also deduct the cost of equipment and supplies that you buy for your business. That includes software purchases and relevant subscriptions, such as if you pay monthly for Microsoft 365 or annually for a domain name.

Make sure you have backup documentation for any business expenses you deduct. That means keeping receipts that show what you purchased so you can prove that the expenses were for business. You also have to be careful to keep business and personal expenses separate—art supplies for your child’s school project, for example, wouldn’t typically be considered valid business expenses.

Travel and Meals

Meals and travel expenses that are related to your business may be tax deductible. If you stay in a hotel, book a flight or incur other travel expenses that are necessary for the running of your business, you can claim them as a deduction. The same is true for 50 percent of the value of meals and beverages that you pay for as a necessity when doing business.

The IRS does set an “ordinary and necessary” rule here. For example, if you’re traveling to meet with a client and you need to eat lunch, that is likely to be considered necessary. But if you opt for a very lavish meal for no other purpose than to do so, it might not be allowed under the “ordinary” part of the rule.

Business Insurance

If you carry liability or similar insurance for your business, you can deduct it as a cost of doing business. You may also be able to deduct the cost of other insurance policies if they are necessary for your trade.

5. Estimate Your Taxes Quarterly

The IRS offers provisions for estimating your employment taxes on a quarterly basis. Self-employed individuals, including freelancers, can make these estimated tax payments, too. Paying as you go means you won’t owe a large sum every April, and if you overestimate, you may get a tax refund.

Quarterly payments are due in April, June, September and January. They can be mailed or made online. Depending on how much you earn, you may need to make quarterly estimated tax payments to avoid a penalty at the end of the year.

6. Consult a Tax Professional

As you can see just from the basic information and tips above, paying taxes as a freelancer can get complicated quickly. Consider talking to a tax professional to understand what all your obligations are and how best to reduce your tax burden using legal deductions. You might be missing a major deduction every year that could save you a lot of money.

And remember that as a freelancer, you’re running your own small business. That means paying attention to all your finances, including your credit report. If you ever want to take out a business loan or seek other funding to grow your business, you might need to rely on your good credit score.

Check your credit score, and if you find inaccurate negative information making an impact on your score, contact Lexington Law to find out how to get help disputing it.


Reviewed by Cynthia Thaxton, Lexington Law Firm Attorney. Written by Lexington Law.

Cynthia Thaxton has been with Lexington Law Firm since 2014. She attended The College of William and Mary in Williamsburg, Virginia where she graduated summa cum laude with a degree in International Relations and a minor in Arabic. Cynthia then attended law school at George Mason University School of Law, where she served as Senior Articles Editor of the George Mason Law Review and graduated cum laude. Cynthia is licensed to practice law in Utah and North Carolina.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

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Class calculator: Which American income class do you really fall under?

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The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

With so much economic uncertainty, the desire for normalcy and stability has never been greater. The American “middle class” is an often vague categorization of the way most Americans live—including milestones such as homeownership, sending two kids to college and retiring at 65.  

According to a 2018 Northwestern Mutual report, 68 percent of Americans consider themselves “middle class.” But in reality, only 52 percent are designated as such (as of 2016). This discrepancy may be fueled by the desire to fit neatly into the middle, which can often be perceived as the norm. So what class do you really fall under? 

Middle class calculator

The calculator below gives an estimate of middle class designation based on state and total household income. It will also compare your results to your state’s average income and the current national average. To learn more about the evolution of the middle class, skip to our infographic.


Please enter your income and state.

You in the middle class in .

Here’s how you stack up compared to your state and the national average:

The evolution of the middle class and economic mobility

The middle class is slowly disappearing. As wealth disparity and wage gaps continue to widen, the concept of the “99 percent” versus the “one percent” becomes more of a reality.

For context, in 1971, 61 percent of Americans fell under the middle class. By 2016, this percentage had shrunk to just 52 percent—a significant drop of 9 percentage points.

Along with a shrinking middle class, downward economic mobility remains a concern. As technology and automation replace jobs, many workers will continue to lose their employment and slide into a lower income class. According to the Organization for Economic Co-Operation and Development, about 17 percent of middle-income jobs are at a high risk of automation.

Determining income class

There is no set standard for what is considered upper, middle or lower class. One simple method, coined by economist Stephen Rose, categorizes income class based on five buckets:

  • Poor or near-poor: $0 to $29,000
  • Lower middle class: $30,000 to $49,999
  • Middle class: $50,000 to $99,999
  • Upper middle class: $100,000 to $349,999
  • Rich: $350,000

Another method used by Pew Research Center to determine the middle class is to calculate whether income falls within two-thirds to double that of the national average—which is currently $63,179. By this method, a household with a total income ranging from $42,199 to $126,358 could be considered “middle class.”

While these methods are a great starting point, there are typically other factors that play into class, such as debt load, personal health, family situation, education and more.

The relativity of class and alternative viewpoints

The analysis of class is always relative. Psychological factors—like how we perceive our own situation—play a vital role in our happiness. “The mind is the most powerful functioning organ in our system, and thinking you are poor will definitely cause your whole system to act like it,” explains Ricardo Flores, a financial advisor at The Product Analyst. “Class is definitely relative. You can move from this position in life if you feel like you should or you can.”

Social and cultural capital are alternative ways to view class. This way of thinking approaches class as relating to how you view yourself and how you interact with others. It also allows room for your cultural background to influence your class—including art, literature, music and other important aspects of culture that make us who we are.

Just as income, education, location, social connections and mindset impact our well-being, so does debt. Credit card debt is massively expensive over time due to interest paid. But perhaps even more importantly, it has been linked to mental health issues like depression. No matter which class you fall into, proper credit management is vital—to both your physical and financial health. 

The infographic below dives deeper into the making of the middle class:

Methodology
Lexington Law used Pew Research Center’s standard of calculating income class that defines the middle class as having a household income that is two-thirds to double that of the national average. The most recent data available on average household income from the U.S. Census Bureau was used for the state and national averages. Lexington Law does not share any of the information provided in this calculator.


Reviewed by Cynthia Thaxton, Lexington Law Firm Attorney. Written by Lexington Law.

Cynthia Thaxton has been with Lexington Law Firm since 2014. She attended The College of William and Mary in Williamsburg, Virginia where she graduated summa cum laude with a degree in International Relations and a minor in Arabic. Cynthia then attended law school at George Mason University School of Law, where she served as Senior Articles Editor of the George Mason Law Review and graduated cum laude. Cynthia is licensed to practice law in Utah and North Carolina.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

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Do’s and Don’ts of Paying Off Debt Early

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The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

The word “debt” usually has a negative connotation. Whether it’s student loans, lines of credit, consumer debt or a mortgage, most people strive to pay it off as early as possible. However, there are smart decisions to be made when paying off debt. For example, many people wonder, “Does paying off a loan early hurt credit?” This guide takes you through all the do’s and don’ts of paying off debt early so you can make the right decisions for your financial health.

What are the benefits of paying off debt early?

There are several appealing reasons why you might want to pay off your debt early.

You can save money

When it comes to debt, what can really get you is the interest rates. Luckily, if you pay off a debt earlier, you’re reducing the total interest you pay.

Let’s say you have a credit card balance of $5,000 at an average credit card interest rate of 16 percent. If you’re making a monthly payment of $200, it will take you 31 months to pay off the debt, and you’ll have paid a total of $1,122 in interest.

Now, if you increase your payment, it can make a significant overall difference. By doubling your monthly payment to $400, you will more than double the impact on interest and total loan time. Your time to pay off the debt will decrease to 14 months, and your total interest paid will be $506.

You can protect your credit

If your debt is something like a loan, then paying it off early can protect your credit. You will no longer be in danger of damaging your credit with a late or missing payment. Either of these instances can typically lower your credit score by 90 – 110 points for several months.

Additionally, paying off your debt can help your debt-to-income ratio. Your credit score is made up of five factors, and the debt-to-income ratio accounts for approximately 30 percent of your credit score.

You can decrease your debt-related stress

According to a 2019 survey produced by BlackRock, Americans identify money as their number one source of stress. Debt can make people feel insecure about their future and cause endless worry. This financial stress can start to impact job performance, quality of life and personal relationships. When you pay off your debt early, you’ll have more peace of mind about your financial state.

Potential negative consequences

You might be surprised to learn that there are some potentially negative consequences to paying off debt early as well.

Prepayment penalty fees

It’s essential to read the fine print of your debt before you start paying it off early. Some creditors choose to protect themselves from individuals trying to pay off debt early by including penalty fees. For example, many mortgages put a cap on how much extra you can contribute to your mortgage loan every year. Usually, it’s up to 20 percent of your principal balance annually.

Find out if your loan has a prepayment penalty fee, and calculate whether this fee is greater than the interest left on your loan. If your interest is lower than the penalty fee, it’s really not worth paying off the loan early.

Changes to credit factors

So, does paying off a loan early hurt your credit? The answer is, sometimes it can. For example, installment loans are different from revolving debt. Installment loans, such as mortgages, have a fixed interest rate for a period of time and fixed payments. Revolving debt, such as credit card debt, usually has high interest rates and options for minimum payments.

Keeping installment loans open can help your credit by improving your credit diversity. Additionally, installment loans show the credit scoring companies that you can reliably pay a loan. On the other hand, credit card debt, unless you’re paying it off entirely every month, can do more harm than good to your credit score.

However, this doesn’t necessarily mean that paying off a loan will hurt your credit score—you just shouldn’t expect it to automatically help, either. Your credit score may not change at all, or it may shift in either direction by just a few points.

Paying off debt: Do’s and Don’ts

Do address monthly expenses first

Your debt shouldn’t take priority over your monthly fixed expenses. Payments such as your rent, utilities and food are necessities. You need to pay these to continue living safely and comfortably.

Don’t neglect your savings

It’s crucial to have savings, especially emergency savings. Make sure you have an emergency fund at a level you’re comfortable with. That way, if something urgent comes up, like the loss of a job or a medical bill, you will be able to survive without falling into more debt. People without emergency funds often find themselves turning to desperate solutions (such as payday loans), which are usually more harmful in the long run.

Do consider refinancing

If the balance of your installment debt is incredibly high, it might be time to consider refinancing. This route is usually a great option if you’ve been making regular payments and have seen an improvement in your credit score. A better credit score may mean you qualify for better rates with refinancing, which can save you thousands of dollars in interest.

Talk to a financial planner first to better understand if refinancing is the best option for you.

Don’t discount investment opportunities

It can be tempting to prioritize debt above all else, including retirement. Don’t discount investment opportunities, though. Just as you should have an emergency fund, it can hurt you long term  if you don’t begin saving for retirement now.

Additionally, consider the interest rates on your debt. The average return on investments in the stock market is, historically, around 10 percent. If the interest on your debt is lower than 10 percent, investing might be a better option than paying debt off early.

Do consult a professional

The right balance of debt can actually help your overall credit. However, it’s all quite complicated, and there are a lot of different factors to take in. It’s vital to consult a finance professional before making any significant decisions.

Paying off your debt sooner than necessary isn’t quite the straightforward process it might seem to be. There are many factors to consider, and it’s important to be thoughtful before making any decisions. You can also reach out to our team at Lexington Law today to learn more about your credit.


Reviewed by Cynthia Thaxton, Lexington Law Firm Attorney. Written by Lexington Law.

Cynthia Thaxton has been with Lexington Law Firm since 2014. She attended The College of William and Mary in Williamsburg, Virginia where she graduated summa cum laude with a degree in International Relations and a minor in Arabic. Cynthia then attended law school at George Mason University School of Law, where she served as Senior Articles Editor of the George Mason Law Review and graduated cum laude. Cynthia is licensed to practice law in Utah and North Carolina.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

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New debt collector rules you should know about

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The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

In October 2020, the Consumer Financial Protection Bureau (CFPB) announced  a new rule for the Fair Debt Collection Practices Act (FDCPA), which is in place to stop debt collectors from engaging in unfair practices. Consumers must understand the new debt collector rules under the FDCPA to know their rights and protect themselves. 

Your rights under the FDCPA

Approximately 28 percent of Americans with a credit report have had debt in collections, according to a 2019 report by the CFPB. Having a debt collector contact you repeatedly can feel overwhelming and intimidating. The government protects consumers by placing explicit restrictions on debt collectors under the FDCPA. By having a clear understanding of your rights, you’ll know when a debt collector is violating the law. 

The FDCPA outlines the methods a debt collector can and cannot use to contact you. Some of the previously existing rules included:

  • A debt collector cannot contact you at inconvenient times and places, including at work if they are told you’re not allowed to receive calls there. If a debt collector does contact you at work, you have the right to tell them to stop and they cannot continue calling your workplace. Additionally, debt collectors cannot call before 8 a.m. or past 9 p.m. unless you specifically say these times are okay. 
  • Debt collectors generally cannot tell others about your debt. They can only disclose your debt to yourself, your spouse, and your attorney. 
  • However, a debt collector can contact other people in an attempt to find your address, phone number or place of work. They can usually only contact these people one time. 
  • Debt collectors aren’t allowed to threaten you, use obscene language or harass you with phone calls. 
  • Debt collectors can’t tell you lies about your debt or the consequences of not paying your debt.
  • Debt collectors are not allowed to collect more than the original debt owed (like interest, fees, or other charges) unless the original contract or state law allows it.
  • If you don’t believe the debt is correct, you’re allowed to ask for a debt verification letter. After making this request, the debt collector cannot continue to pursue you until they have shown you written verification of the debt. 

It’s important to note that these rules only apply to third-party debt collectors—when a debt has been sold to another party—not the original creditor. If you have a debt outstanding with your creditor, it’s best to start discussions with them before the debt is sent off to collections. 

Updates to the FDCPA

The FDCPA has had many amendments since its original enactment in 1978. The rule was released in October 2020 and will likely go into effect in fall of 2021. 

New methods of communication

Since the FDCPA was originally created before electronic communications existed, no parameters had been set for contacting consumers via texting and social media apps. The October 2020 ruling clarified this gray area, officially allowing debt collectors to reach consumers via electronic messaging. 

Debt collectors can officially send:

  • Text messages
  • Emails
  • Direct messages on social media sites

The CFPB doesn’t limit how frequently debt collectors can send messages but “excessive” communication is prohibited. Excessive communication would violate the FDCPA, which prohibits harassment, oppression and abuse by debt collectors. 

Debt collectors that use electronic messaging to contact consumers must provide a straightforward and easy way for consumers to opt out. Consumers should most definitely use this opt-out feature if they wish to. 

Additionally, public comments on posts aren’t allowed, and debt collectors have to disclose that they’re debt collectors before sending friend requests. 

A representative for Facebook stated, “We are in the process of reviewing this new rule and will work with the Consumer Financial Protection Bureau over the coming months to understand its effect on people who use our services.” 

Lack of verification

Another rule update is that debt collectors no longer have to confirm they have accurate details of a debt before attempting to collect. Previously, collectors had to verify the amount owed and the identity of the consumer before pursuing collection. This decision has met a lot of pushback as debt collectors have a history of pursuing debts that are already paid off, and this new rule will do nothing to stop that behavior. 

New limits on collectors

The new provisions also set some limitations on debt collectors. Now, when the debt collector initially makes contact with the consumer, they must:

  • Provide relevant information about the debt
  • State the consumer’s rights about the collection process
  • Provide clear instructions on how the consumer can respond to the collector 

The consumer has the right to receive all this information before their debt is reported to a credit reporting agency. 

Additionally, debt collectors cannot threaten to sue for debt that is past the statute of limitations. They can, however, still attempt to collect an old debt. 

If a debt collector is verbally asked to stop calling, this now holds the same power as a written request and they must stop calling. However, this request doesn’t mean the debt collector has to stop all forms of communication. And a request to stop calls does not mean the debt collector has to (or will) stop attempting to collect on the debts. 

Defining “harassment”

Collectors can’t call on an account more than seven times in a week, and once they have a conversation with someone on an account, they can’t call them for seven days after that. But this doesn’t help if you have multiple accounts with a collector. 

This new rule also doesn’t apply to other communication methods, and voicemails don’t count against the seven-attempts limit.  

Again, you need to be proactive about requesting that a collector stop contacting you. You should make this request in writing and keep a copy so you have a record. (And remember that the new amendments state that debt collectors must obey a verbal request to stop a particular form of contact). 

Know when your rights are being violated

These new rules were originally proposed in 2019, were approved in October 2020 and will likely go into effect in November 2021. The new rules have received a mixed response, as some rules seem to protect consumers while other rules give debt collectors more leeway. 

A debt collector has the right to collect an outstanding debt, but there are limitations in place to protect consumers. Understanding what these limitations are can help you protect yourself. Unfortunately, just because these rules are in place doesn’t mean every debt collector abides by them. The 2019 CFPB report on consumer complaints about debt collection revealed that 81,500 complaints were filed in 2018. 

If your rights are being violated under the FDCPA, you can potentially sue the debt collector for damages (lost wages, medical bills, etc.). And if you can’t prove damages, you may still be awarded up to $1,000 in statutory damages plus coverage of your legal fees. 

Ultimately, the vital step is for you to take action and stop further illegal harassment against you. 


Reviewed by Cynthia Thaxton, Lexington Law Firm Attorney. Written by Lexington Law.

Cynthia Thaxton has been with Lexington Law Firm since 2014. She attended The College of William and Mary in Williamsburg, Virginia where she graduated summa cum laude with a degree in International Relations and a minor in Arabic. Cynthia then attended law school at George Mason University School of Law, where she served as Senior Articles Editor of the George Mason Law Review and graduated cum laude. Cynthia is licensed to practice law in Utah and North Carolina.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

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